Politicians from both sides of the aisle, along with the President, have publicly supported a second airline bailout in the form of a ‘clean extension of CARES Act payroll support.’ That would mean another $25 billion over 6 months to the airlines in exchange for holding off on employee furloughs.
However this hasn’t happened because it’s caught up in negotiations over a larger package, that some observers say is now unlikely to happen. Since furlough restrictions expire after September 30, some airlines are expected to let go of workers starting October 1. That’s seen as a deadline for Congress to act (or for the President to take some form of executive action, as he’s suggested he could).
American Airlines CEO Doug Parker just joined instagram and is using it to promote another bailout. Comments questioning a bailout are being deleted, of course the social media manager’s paycheck is on the taxpayer dime now.
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On my way back to Washington to fight for the @AmericanAir team. I had an amazing crew of flight attendants — Adrian, Michelle, Brookelle and Sarah. As always, they ensured our customers were safe, and they did so in a caring and friendly way. There is now strong bipartisan support for extension of the Payroll Support Program (PSP). But if Congress can’t come together on a broader #COVID bill, there will be no mechanism by which to extend PSP. And if PSP isn’t extended by Oct. 1, small communities will lose air service and 19,000 American Airlines team members will be furloughed, including three of the four flight attendants in this picture. We simply cannot let that happen. Airline employees keep our country moving at a time when much of the world is paralyzed with fear. And, so long as we keep them employed, they will be here ready to help our country and our economy rebound from this crisis. Everyone seems to understand that now, which is why we have such strong bipartisan support. I just can’t believe we may not be able to do the right thing because our elected officials can’t seem to come to a compromise agreement on the size of a broader bill. We are better than that — and that is the message I will be delivering this week. Because Adrian, Michelle and Brookelle — and 19,000 of their hardworking colleagues — deserve our best.
October 1 isn’t really a hard deadline, though.
- Many workers have already separate from their airlines, through voluntary early retirements – indeed there’s been a huge culling of management ranks, along with buyouts for union workers. Those individuals have already left these companies on a permanent basis.
- Not everyone that might eventually be let go will leave October 1 or in the days following. Southwest Airlines has said they will not furlough anyone in 2020. Delta has said they will not furlough any flight attendants.
- Furloughed workers can be recalled. If a bailout passed after the October 1 ‘deadline’ that would mean airlines recall workers.
So while the October 1 date provides something that’s focal to help airlines get a subsidy deal done, it isn’t the end of the line for airline lobbyists seeking more money from the government.
And that’s why even if you think a new coronavirus legislative Christmas tree (the House bill includes, for instance, $5.5 billion for rural internet as part of its Covid package) doesn’t happen by October 1, there’s still risk we’ll see something happen that includes a second airline bailout.
From the pool. Meadows indicates that admin is willing to give money to airlines. Airlines would like $25 billion to cover 6 months. Meadows: There’s a light at the end of the tunnel and it’s not a train
— Chad Pergram (@ChadPergram) September 17, 2020
That’s why it’s important to understand the reasons that this is an airline bailout, and not as it’s couched by proponents merely a ‘jobs bill’. Here are 4 reasons.
- Most of the money goes to the airline, not workers. Airlines aren’t furloughing most of their employees. American will let go of about 19,000 and United around 17,000, while Delta will furlough nearly 2000 pilots. But payroll support isn’t aimed just at funding just workers who would lose their jobs. The first tranche of payroll support covered around 75% of American’s 2019 payroll, which has since been reduced substantially.
How does payroll support save jobs at Southwest Airlines, which isn’t letting go of workers to begin with? While payroll support ‘can only be used for payroll’ it will be mostly used for payroll costs airlines will continue to incur without it, effectively going to replenish their bank accounts.
Remember that $25 billion divided by 40,000 jobs is $625,000 per job for six months, an annualized run rate of $1.25 million per job. This is the most expensive ‘unemployment program’ in history because most of the money doesn’t go to protect workers.
- Putting workers on government payroll reduces the cost of operating each flight. For those airlines that have to keep paying employees they wouldn’t pay otherwise, that’s free labor. It means that when they add a flight to their schedule – they’re already paying for the plane, and there’s no marginal cost to having more crew work – they really just need to pay the incremental cost of fuel. They can add more flights, sell more tickets, and see breakeven at something more like 25% than 50%.
- Furloughs aren’t free. Stopping furloughs means saving on furlough pay and other costs to decommission employees.
- Furloughs raise an airline’s trip costs. When an airline furloughs workers, they let go of less expensive junior employees and keep more expensive senior employees. Each trip gets worked by more expensive employees, so the average cost of a trip goes up. Preventing furloughs means more junior employees are working, driving down trip costs and boosting the airline’s bottom line.
It’s not out of the ‘goodness of their hearts’ that airline managements have made payroll support grants their top legislative priority. Over the summer American’s CEO Doug Parker said his airline couldn’t lobby for the money because they’re going to survive with or without it. But once it looked like they could really get the money he jumped on board.
Southwest Airlines isn’t even taking the second half of CARES Act money for airlines which comes in the form of loans because they don’t need it, and airlines continue to access private capital markets successfully – Delta just announced a $9 billion raise against their frequent flyer program. There’s no reason for taxpayers to pick up even more money to airlines.