Jamie Baker, in a research note for J.P. Morgan Chase, points out that if airlines get another ‘payroll support’ bailout they’d have to spend some of that money on extra payroll. In other words it isn’t all money straight into the kitty.

A ‘straight extension’ of CARES Act payroll support would be another $25 billion for airlines in exchange for not furloughing workers or reducing rates of pay for six months (but airlines reduce hours, and impose unpaid ‘vacations’). In American’s case, they’ve furloughed the most workers already so bringing those back on board would mean having to spend $1 billion out of an expected $5.8 billion (70% grants, 30% subsidized loans) on actual additional payroll.

Airlines also would have to restore service to communities they’ve dropped. In American’s case this could amount to roughly $7.5 million a month for 6 months (my estimate, not Baker’s, and likely at the high end) or $45 million.

In other words, investors should price the likelihood of more airline aid entirely into an airline’s share price. He also points out, as I’ve noted in the past, two things that are bad for the long run health of airlines.

• It means airlines fly more flights, since payroll is covered they have no marginal payroll cost for adding capacity. This drives down fares.

• It also keeps weaker airlines alive, which keeps fares low and may forestall consolidation.

But will it happen? Baker says a new round of subsidies will happen (“We believe PSP 2.0 is a question of when, not if”).

• At this point it doesn’t happen before the election
  
• And I don’t see why it necessarily happens between the election and inauguration. They go back to square one negotiating at least, because Nancy Pelosi no longer has the Trump administration over a barrel to agree to nearly priority in hopes of a deal boosting electoral prospects.
  
• In a new administration, whether Republican or Democrat, some stimulus deal gets done and airlines are at the front of the line unless the window closes.

Baker though actually sees airlines going for round 3. And if they’re successful in getting round two, why not? They’ll have two data points within a year showing them that the highest return on investment isn’t serving customers it’s lobbying Washington.

Think about it this way…we know what happened when PSP 1.0 expired on October 1: CEOs and union leaders walked hat-in-hand to Capitol Hill and argued for more aid. Do you really think April 1st, 2021 will be much different? We do not – and the reception under a Biden regime wouldn’t be any less receptive, in our view. And while we would have lower conviction on a third round if President Trump overcomes the most recent market election odds, further aid is still possible even in a split Congress scenario as well.

U.S. and European airlines are already the most subsidized in the world. A second round bailout pulls U.S. carriers way ahead. And a third? Why would airlines ever become responsive to customers and the market again?