Airline CEOs Testified Before The Senate On Taxpayer Bailouts – But You’re The One Getting Fleeced

The Senate Committee on Commerce, Science, and Transportation Committee held a hearing on Wednesday billed as holding airlines to account for taking billions in taxpayer bailouts but not using the money the way it was intended – to remain ready to fly customers when passengers were ready to return to travel.

American, Southwest, Spirit and Delta have all had operational meltdowns due to insufficient staffing as they’ve built back their schedules, despite taxpayer money being explicitly to keep everyone on staff and trained. The hearing consisted of the CEOs of American, Southwest, and United as well as Delta’s Executive Vice President and COO (and Sara Nelson).

It was – naturally – full of grandstanding and uncomfortable exercise in Senators not knowing what they’re talking about – matched only by the disingenuousness of claims by airline CEOs.

Ultimately Congress should take steps to actually introduce competition into the airline industry instead of grandstanding about how pandemic subsidies didn’t have the results airlines promised. Or about beefs with airlines unrelated to government subsidies (bashing airlines polls well in most places).

Nonetheless, there are lessons we can take a moment and draw from Congressional hearings on the three successive taxpayer bailouts airlines received,

  • $54 billion in direct payments
  • $25 billion in loans
  • Plus subsidies for their contractors and suppliers
  • And tax relief

It shouldn’t be much of a shock, but the basis on which they were sold was pretty fraudulent. And the airlines themselves wrote the language on restrictions that created loopholes.

These Were Really Bailouts For Shareholders And Creditors, Not Employees

Carriers claimed that they needed the funds to ‘keep everyone on staff and ready to fly when travel returned’ but they didn’t do this. American and Delta (in contrast to United) paid pilots to stay home and didn’t keep them current in the cockpit.

And that’s a big part of why they had pilot shortages that led to operational meltdowns. Airlines also used pending expiration of payroll bailouts as leverage to force nominally voluntary exits by staff (e.g. 30% of American’s non-union workforce).

We also know that the argument the money was going to workers rather than the companies was specious,

  • Far fewer than 40,000 workers faced potential furloughs by the time of the second payroll support program – we know the actual furloughs when the first one expired September 30, 2020 and airlines were looking at growing their workforces from there.

  • Yet another $29 billion was allocated to cover 10 months of payroll – so more than $870k annualized per job ‘saved’ from the second and third bailout rounds.

At airlines like Delta that never furloughed anybody, it was straight subsidy to the airline. For airlines like United and American that conducted meaningful furloughs those actual jobs could have been saved for less than 80% of what was given in the second and third round. Unions went along with funds meant primarily for shareholders and creditors because they didn’t want their contracts renegotiated in bankruptcy.

It’s Fair For Politicians To Criticize Airlines That We Didn’t Get What We Thought We Paid For

It’s strange for politicians to be shocked – shocked! – that they handed money to the airlines and they (mostly though not entirely) followed the letter of the law with those funds, rather than the ‘intent’ of how the law was sold. But it’s not the worst thing to point it out, either.

And since Doug Parker called out Scott Kirby at United for not using CARES Act Payroll support funds as-intended, it’s sort of disingenuous for him at least to complain about Congress doing so!

There were a handful of other, unrelated exchanges that were interesting as well. (American has since walked back Parker here.)

Airlines Were Bad Actors

In fact it’s worth noting that American Airlines refused to pay people involuntarily separated from the company when the second payroll bailout was passed if those workers had gotten new jobs elsewhere – even though the point of the money was to bring those workers back. That seemed clearly in violation of the requirements of the funding.

The claim about ‘having employees ready to fly when customers were ready to return’ was a political selling tool just like the laughable claim that without subsidies there’d be no way to transport vaccines (which was never even close to true). Politicians knew it at the time. I wrote about it at the time. Those pieces made it into several congressional offices.

Even now airlines and their allies on the Hill are trying to rewrite history on the bailouts. Senator Roger Wicker (R-MS) says the problem is we didn’t give them enough taxpayer money.

Sadly Outrage Will Be The End Of It, Not Real Reform

Once members express their faux outrage, they should turn towards improving air service in the United States which is supposedly what they’re complaining about.

  • Allow foreign ownership of U.S. airlines
  • Stop letting incumbent airlines squat on gates at government-owned airports
  • Eliminate grants of slots at New York JFK, LaGuardia and Washington National airport – either award slots on an auction basis for 10 years, or simply do congestion pricing for takeoffs and landings
  • Address throughput of congested airspace as well through better technology and air traffic management

Dragging airline executives before Congress when they mostly complied with the laws Congress wrote does nothing to actually improve air travel in the United States. But it’s still a point worth making that taxpayers were hoodwinked to the tune of about $100 billion.

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 »

More articles by Gary Leff »

Comments

  1. What about cabotage reform? It’s absurd that Aeromexico and Air Canada can’t fly dedicated routes between two US airports.

  2. “It was – naturally – full of grandstanding and uncomfortable exercise in Senators not knowing what they’re talking about – matched only by the disingenuousness of claims by airline CEOs.”

    One of the best lines from your blog this year! And your recommendations are also spot on. I guess it’s something that they brought them in and asked at least some uncomfortable questions, but the whole day gives less the impression of “lessons learned” than of “got away with it”.

  3. @ Gary — The airlines rush to grab cash, we rush to grab SimplyMiles. The CEOs say they did nothing wrong, but now they search for a loophole to not pay us miles they can devalue on a whim. Such hypocrisy.

  4. Well said, Gary! Where is accountability for these multi-billion dollar airline bailouts?
    And as @FNT Delta Diamond stated, let’s just open up US city-to-city travel to foreign air carriers. All us self-loading air cargo will vote with our feet!

  5. Don’t worry, mayor Pete now has the checkbook with Trillions (yep that’s a T). What could go wrong?

  6. At least WE don’t have to worry about this government greed, we’ve been promised are taxes won’t go up.

  7. “Those pieces made it into several congressional offices.” Hahaha….like senators and congressmen care about this little rag!!!! That is hilarious.

  8. No. The reforms needed at the regulatory level are:

    1. Increased barriers to entry (needed fewer start-up ULCCs so as to reduce risk of service reductions by the Big 3 in second tier markets);
    2. Minimum standards for seat pitch and width and service levels;
    3. A floor on what airlines can charge for a seat – need fares to increase to push for service improvements; and
    4. Allow for foreign ownership (on this we agree).

  9. The same unions that pushed government support and has threatened poor service if airlines ask them to do too much are the very ones that will ensure cabotage never happens.
    But, honestly, hoping US domestic markets should be open to foreign carriers only makes sense if US airlines can do the same elsewhere- neither will ever happen.

    There was never a need for anything beyond the 1st round of government funding. Angst should be directed at legislators that were too worried about losing union votes in 2020 to say no. Any business will take whatever it is given

Leave a Reply

Your email address will not be published.