Four Reasons ‘Payroll Support’ Is Really A Bailout For The Airlines

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.

View this post on Instagram

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.

A post shared by Doug Parker (@doug_parker) on

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.

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.

  1. 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.

  2. 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%.

  3. Furloughs aren’t free. Stopping furloughs means saving on furlough pay and other costs to decommission employees.

  4. 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.

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. @ Gary — Disgusting. Thank goodness for the real conservatives left in Congress. Hopefully they will block this massive waste of money.

  2. This is like paying people to drive snowplows around Florida….just in case. Bottom line is arline operations have shrunk by at least 60%. At MCO where I am almost constantly it seems all of the chairs outside the West Checkpoint are permanently occupied by AA ramp agents playing on their phones…..all day everyday. They have no work to do because AA only has like 30 flights per day now but they still staffed for a full operation which I’d guess is over 100 flights per day. If the demand for whatever the [insert anything] factory makes decreases, the factory lays off employees or closes all together. They don’t stay open producing what people don’t want while burning whatever cash they have left on payroll…..UNLESS you’re an airline and your labor costs are picked up gratis for you by the American taxpayers…..the same taxpayers who you wont even give a bag of peanuts to now. It sucks people are going to lose their jobs but we’ll be right back here again in March.

  3. Just a note. Rural internet support is to help distance learning for those areas without good internet penetration. It is NOT pork, and is VERY important right now. I can personally vouch for the areas of the US without enough broadband to support kids learning from home.

  4. I have always said this what people do not realize that within the payroll program is allowance for “burden” defined as cost of payroll that number depending on your accountant is 27 to 35% thats a lot of money. What sickens me now is there is a deal pending where the three huge socialist left leaning state will get a bailout as well, We the taxpayers are left sucking wind. This will drive the deficit past 5 trillion god help our grand children is all I can say

  5. @Ghostrider5408 “there is a deal pending where the three huge socialist left leaning state will get a bailout as well,”

    No, there is a proposal being discussed, and it includes Texas, Florida, et al.

  6. @Ghostrider: one look at the history of US deficits will show that in the past 40 years Democratic Presidents have consistently shrunk the deficits (a significant surplus at the end of Clinton’s tenure, Obama significantly shrinking the deficit that he had inherited from the Bush administration) while Republicans have been fiscally irresponsible. The Bush administration was the first to be truly reckless with the budget, spending trillions on wars while cutting taxes and allowing the deficit to baloon completely out of control between 2001 and the end of 2008. During an economic boom in 2017-2018, the Trump administration passed a huge tax cut (mostly for the wealthy who did not need any relief), and this money would have been sorely needed now.
    It’s economics 101 to cut taxes and spend more (incurring more debt) during a recession; and then raise taxes and spend less (& pay off debt) during a bull market, to make up for it – thereby steering the economy into equilibrium so it’s not as much of a seesaw motion of boom and bust, and keeping the budget, overall, averaged out over the decades, stable. For a long time, this system worked just fine and brought great prosperity to America and a relatively manageable amount of debt, until 20 years ago the Bush administration broke it and now we best hope that it never needs to be paid back or that the US can keep printing money infinitely.
    In this emergency situation, people do expect their states to be bailed out. The budget shortfalls are mostly not the fault of the states or their citizens who require basic services (schools, police, social work, safety inspections and whatever else) to function.
    Also, taxpayers from blue states pay in waaaay more than they get back in services. Blue states have been indirectly funding red states on average for a long time. And that’s ok – sparsely populated states need more per capita, that’s logical. But let’s not play this game. Every state has to be saved from the current crisis.

  7. Sounds like a union problem. We have 60 year old flight attendants who have had long careers and are earning the most money receiving priority over younger people who are struggling and don’t have many opportunities as manufacturing jobs were sent to China and Mexico.

    AA should have used COVID as an opportunity to get rid of all employees and hire back those they care to at fair market rates. There is no reason why a 60 year old flight attendant with 40 years of service should continue over younger ones.

  8. Two quick points.

    #1, I am old enough to remember the Chrysler bailout. That bailout was approved 100% because of the fear of having 300,000 employees get dumped onto unemployment. It is the same here. The pitch for the airline bailout is 100% a threat to dump 100,000 airline workers onto unemployment right before the election, unless they get their bailout.

    I won’t write a long boring explanation of why it is stupid to prop up old industries in a recession, but it is really stupid. Anyone interested can google “creative destruction.”

    #2, Let’s not let scare tactics make us believe these airlines are in danger of disappearing. Their stock prices are no where close to Zero. If these airlines go into bankruptcy court, they will not be liquidated. They can be taken over by people who will run them better than the idiots currently in charge. Just like what happened when AA bought TWA or AmericaWest bought USAir out of the bankruptcy court.

    Kevin O’Leary made this point on CNBC yesterday.

    http://www.cnbc.com/2020/09/17/kevin-oleary-says-airlines-should-not-be-given-more-coronavirus-aid.html

  9. #Joseph N:
    Regarding O’Leary, I wish I could also sell a pile of junk to Mattel for $3.5 billion that gets written off a year later.

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