Airlines are allowed to cut cities they serve once CARES Act money runs out. American Airlines telegraphed their plans to do so if the government doesn’t re-up $5.8 billion in payroll support. But why would the airline use this as leverage, if payroll support really just protected jobs?
The simple reason is that a ‘straight extension of CARES Act payroll support’ which airlines are asking for doesn’t primarily support jobs that would have been lost. It costs $333,333 per person who would have been laid off, and only prevents furloughs for six months.
This is the most expensive unemployment program in history, paying employees not to work and not to move onto new roles where they’ll benefit the economy, because it’s largely covering payroll expenses airlines will still have anyway even after furloughs.
I’ve argued it’s absolutely true that airlines will need to adjust their schedules once they’re permitted to drop service to some cities. However American’s announcement this morning that they plan to drop service to 15 cities is cravenly political, mentioning CARES Act funding 3 times in a modest 151 word release.
The cities chosen sure look suspicious to the rest of the industry.
| City | Airport Code |
|---|---|
| Del Rio, Texas | DRT |
| Dubuque, Iowa | DBQ |
| Florence, S.C. | FLO |
| Greenville, N.C. | PGV |
| Huntington, W.Va. | HTS |
| Joplin, Mo. | JLN |
| Kalamazoo/Battle Creek, Mich. | AZO |
| Lake Charles, La. | LCH |
| New Haven, Conn. | HVN |
| New Windsor, N.Y. | SWF |
| Roswell, N.M. | ROW |
| Sioux City, Iowa | SUX |
| Springfield, Ill. | SPI |
| Stillwater, Okla. | SWO |
| Williamsport, Pa. | IPT |
One industry veteran with experience in scheduling and route planning calls the move “hugely political” and tells me, “they did this to create [the] most pain” noting that in spreading the cuts across 14 states these small moves “affect the most number of senators.”
Analyst Henry Harteveldt points out that a majority of the cities American Airlines is cutting have no other year-round air service. So while nearly all routes are really bad right now – American isn’t even serving Boston daily from Washington National – these are cities where American has a monopoly part of the year.
.@AmericanAir is the only #airline with year-round service in 9 of the 15 cities where it plans to suspend flights: DRT, DBQ, FLO, PGV, JLN, HVN, ROW, SWO, IPT.
This isn’t a political move, is it…#travel #CARESAct
— Henry Harteveldt (@hharteveldt) August 20, 2020
It’s no surprise that American Airlines is playing the political game so vocally. United CEO Scott Kirby was the first to do so, but he served for years underneath American CEO Doug Parker – who owes his career to bailouts.
Doug Parker testifying on the need for subsidies to the US airline industry in 2001
Doug Parker was CEO of America West right before 9/11 and identifies obtaining Air Transportation Stabilization funds from the government as a linchpin of his legacy. He was able to take over US Airways because it too had been ‘saved’ by ATSB funds, and then by the state of Alabama’s pension system. He gained the backing of creditors to take over American Airlines in part by winning the support of the government Pension Benefit Guaranty Corporation.
And now that American Airlines is the U.S. airline at greatest risk for bankruptcy with the most debt and costs that will be higher than competitors going forward as a result of failing to get senior employees to retire, the future of the airline may rest more on cronyism than capitalism.
The good news is that if politicians are able to see through the machinations, other airlines will almost certainly step in with air service once American leaves. In fact a better strategy than caving would be to subsidize other airlines who aren’t playing this game to do so rather than caving to blatant manipulation.
Those cities all shouldn’t have service anyway. Drive to a hub, or dont live there if you business travel.
I don’t know about the other cities but explain to me why SWO even has service?
Cut them all and see if I care.
It shouldn’t be a surprise to folks in those small towns that air service isn’t viable at current load levels. Calling this a craven political play just sounds like whining. You’re saying that AA should effectively be subsidizing service to these small, frankly unimportant markets? Huh?
The fact that any of these cities is served in the first place is a testament to pork barrel politics.
Airports built with taxpayer money and service subsidized by taxpayers. Cutting flights is a gift
Give me money or I will make life difficult on some communities. Sounds a little dirty / blackmail-ish
Small cities across the world are losing service.
LNZ in Austria is a city with 200,000 people. Home of the largest steel and chemical/ pharma company on the country. Plus many other industrial companies
They barely hang on the LH route to FRA. OS no longer flies to VIE.. pax should take the train.
Facts of life..
Most all of those flights were already subsidized by the federal govt. So ending them will save tax payer money. Those are also served by regional carriers not by American (there is a difference).
This article is more just an excuse to chastise an airline that is just trying to survive and keep people employed and keep the economy going so that they can continue to offer seats on flights at lower prices than they should be selling them for and giving away way too many miles to penny pinchers and coupon clippers that want to milk as cheap of a flight as possible then complain when their nuts are cold.
And yes they hve a debt load because they were buying new aircraft to appease the fly by miles customers that kept complaining of old planes.
The one in trouble in the long run is Delta. They have retired most of their fleet and they have no aircraft in the order chain for when things pick back up. And if they are able to pirchase someones slot in line it will cost them even more. Delta has a hard road ahead of them that includes a huge debt load in the near future to purchase planes they might not get for 10 years and then it will be too late.
@Bubthebuilder – none of these flights were receiving specific federal subsidies (though I can’t speak to local incentives). Two of these cities (Joplin, Sioux City) are Essential Air Service cities though American does not currently receive subsidies for either.
One man’s “craven play” is another man’s smart business strategy. Would you play Parker’s hand differently? I wouldn’t. His move is helping his employees, shareholders and customers. He’s putting appropriate pressure on Washington to advance the interests of his constituents. Whether that’s AMERICA’s interest is another story. That’s a harder call at this point, although I would say the summer, seasonal COVID spike in the Sunbelt did delay the airline recovery a couple months. I could be persuaded that it’s in the national interest to over-staff airlines through the end of the year to aid the economic recovery.
@chopsticks – would I play Parker’s hand differently? Well he is the one that built the most debt-laden carrier to begin with, he isn’t blameless for the predicament relative to other airlines. And yes – I would play the hand differently, I wouldn’t be going back tot he government again for another bailout. I get stealing all you can from taxpayers, but I am not sure it’s in the long run interest of shareholders given the additional regulation that may ultimately follow.
He (or his staff) is playing this well. I’m sure more than a few of the 28 Senators representing these cities are up for re-election. And there are a number of Congressmen too. It is a given fact that government assistance is far from over. Do I smell money coming?