Government Subsidies Are Causing American Airlines To Cancel Hundreds Of Flights

U.S. airlines took $79 billion from taxpayers during the pandemic, not counting the suspension of ticket taxes or the money they indirectly benefit from that went to airports and contractors. Their pitch was that they would be ready to serve the public when travel demand returned.

American Airlines, like many others, didn’t actually keep their workforce ready to fly. Without enough pilots requalified, they haven’t been able to operate all the flights they’ve sold to customers and have been cancelling hundreds a day for the past week, and they’re proactively cancelling more flights into July to compensate.

The last round of subsidies – “PSP 3” or money ostensibly to help cover payroll April 2021 through September 2021 – started after American Airlines was already cash flow break even starting in March. Nearly all of the money, also, went straight to the airline’s bottom line since only about 10% as much would have been needed to cover workers who might have been laid off.

And, it turns out, that the current round of airline payroll subsidies are actually the reason why American Airlines overscheduled its operation and is now cancelling flights. As CEO Doug Parker explained to employees on June 15, right before the operational meltdown,

It’s an incredibly odd environment right now where it actually makes sense to be flying widebodies from Miami to LA. It only makes sense by the way because our airplanes are paid for and our people are paid for thanks to the CARES Act (sic).

So we have, therefore a lot of what we’re doing is flying airplanes, the only alternative either is to idle airplanes and idle people and not fly and it doesn’t take that much revenue to cover the fuel cost. This is not a sustainable type of schedule for anybody, any airline, that we’re flying around. But it makes sense now.

The the planes are either paid for, or have to be paid for either way, and since they’re required to pay all employees whether they fly or not, the only extra cost they really have when they add a flight is fuel.

So if they can add a flight and add enough passengers that more than covers the fuel, they have an incentive to add a flight since they net more revenue. Because of the subsidies, which require them to pay all their current workers, they’ve overscheduled the airline. And that’s why they’ve been cancelling flights.

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, 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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  1. Government subsidies aren’t the reason AA overscheduled its operation. The demand for the flights is there. AA cheaped out, trying to skim as much of the government subsidies as possible. This is the exact reason that the government subsidies existed, to keep employees on payroll so that when demand eventually quickly returned, the airlines would have the staff to support the demand. Shame on AA.

  2. Meanwhile Doug Parker is fellating himself over his stunning and brave decision to have dinner with a black FA and attend her wedding.

  3. Can’t fault a corporation for taking free money. The fault is 100% the US Congress. Congress is broken!

  4. I would take that one step further rbj. It’s the fault of we the people, who put these losers in office and give them the power they have. And, to seldom if ever hold them accountable for crap like this.

  5. “We the people” Hey maybe pick another pronoun that doesn’t give away your lack of intelligence. I know you think it makes you sound smart but it’s actually a tell. The CARES Act was passed by a Republican Senate, a Democratic House and signed into law by a Moronic President. Yes, the airline subsidies were stupid, overly generous and not necessary but the law kept our economy from totally cratering and our country is in better shape, at least economically, than it would have been and in comparison to others.

  6. Thanks, Gary, for an enlightening explanation. It seems reasonable that we use this experience to craft a more sensible approach to such subsidies the next time we face this issue.

  7. The author has 20/20 hindsight. How would an airline know for certain that travel was poised to return with a vengeance as it did? I do not discount greed on the part of the execs, who have always taken care of themselves first. Having said that, my own opinion is that the execs at American, which has the highest debt load of the majors, were trying to conserve cash in case travel did not return as quickly as it did. Were they wrong? Undoubtedly – as they have been wrong (again, my opinion) in many other instances, such as cramming people into smaller and smaller spaces, removing seatback video, etc. Let’s see what they do with executive compensation, and whether there are changes to the Board and/or executives as a result of their poor planning.

  8. I might believe this explanation if every other airline was having the same issues. They all took the funds, but only American is imploding. Makes me thing it wasn’t the Govt funds but more mismanagement.

  9. I have to say AA’s reasoning is BS as is the conclusion of this article. The only reason they had this issue is:
    American Airlines, like many others, didn’t actually keep their workforce ready to fly. Without enough pilots requalified, they haven’t been able to operate all the flights they’ve sold to customers and have been cancelling hundreds a day for the past week, and they’re proactively cancelling more flights into July to compensate.

    The only thing to add is they were caught un-prepared when customers started booking flights because again, they didn’t actually keep their workforce ready to fly. AA new how many people were booking the flights, if they had been prepared for it this wouldn’t have been an issue.

    The rest about it being because of the of the subsidies is BS and is making excuses for AA.

  10. Throughout the pandemic, American and Southwest have taken every opportunity to add flights beyond their pre-covid network and to fly a higher percentage of capacity than other carriers, esp. Delta and United.
    It should surprise very few that Delta and United are not experiencing dramatic operational meltdowns.
    Southwest’s IT related meltdowns have now morphed into their usual 1-2% of daily flights cancelled (about the same as American) but Southwest’s on-time has never returned to decent levels.
    Cranky Flier did a story earlier this week on the operational issues and tracked several airlines. American and Southwest have had rough operations for weeks. The graphs in the article are worth seeing.
    Not every airline approached their operation or their subsidies/government aid the same.

  11. Say it with me everyone, “Government intervention makes problems worse. Every. Single. Time.”

  12. @Doug: How would AA’s current performance be better, and scheduling issues reduced, without the government subsidies? I’m not disputing that government intervention can go wrong, much like private sector decisions also go wrong. All decisions, by both governments and the private sector can potentially go wrong because human beings at those entities get things wrong. My question regards your use of the comparator, “worse.” Worse than what? What would have been better, even in hind sight?

  13. The problem is not that quite simple. Having qualified crews is just part of the problem. They also substantially shrunked their fleet which came as a windfall because these airplanes were set to be retired anyway. Terminals are packed, less airplanes and crew equals chaos. There’s a delicate balance between full airplanes to meet demand and too much capacity. In my 32 years this is always a balancing act to have as little empty seats as possible without leaving behind passengers. Couple that with less spare airplanes or wide bodies operating domestic routes instead of their intended long haul international routes and you have a recipe for what’s happening now.

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