J.P. Morgan Chase: Airlines Will Get Second Bailout, Come Back For Third Because Why Not?

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?

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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  1. […] With approximately 40,000 airline employees in total furloughed, that’s a cost of $637,500 per job. And to the extent the clock starts running January 1 (which seems early) and goes through March 31, 2021 it’s an annual run rate of $2.55 million per job. J.P. Morgan Chase expects airlines to get the money, and then to ask for a third bailout to keep paying workers past M…. […]

  2. […] Airline CEO Doug Parker stammered in response to a question about government subsidies, demand hasn’t recovered for air travel and effective April 1 they’re allowed to re-furlough employees, so he offered that unions have been talking to the Biden administration about including more subsidies in the next stimulus bill addressed in Congress. Bailout number 3 as predicted by Jamie Baker at J.P. Morgan Chase in October. […]


  1. Thank you for diligently covering this story Gary. It’s amazing how uncritically mainstream media (both sides – WSJ, NYT, CNN, Fox) accept the ‘poor airlines’ narrative with no context or critical thinking. Happily ‘Manufacturing Consent’ for more public money to a favored sector.

    Keep doing what you’re doing.

  2. “It also keeps weaker airlines alive, which keeps fares high.”

    More carriers does not equal higher fares…..

  3. Can someone with the ear of important Senators or Congresspeople, please whisper in their ears that second and their bailouts should include a mandatory rollback of the devaluations the airlines have made to their frequent flier programs. The paying public (and taxpayers) should get something out of this giveaway with our money.

  4. We all better hope they get a bailout because if not they’ll eventually go bankrupt. The media would have you think that the virus can just go away all those deplorables just wore their masks but here’s the rare truth you won’t hear elsewhere: this virus is permanent, never going away, and there will never be an effective vaccine either.
    There you have it, unvarnished. Coronavirus is forever. Masks will be on your face not just in 2020, not just 2021, but forever, period.
    What we need is to get used to that and allow restaurants, hotels, and airlines to go back to normal, with ‘vulnerable’ people just not taking part if they’re worried. It’s either that ‘unfair’ policy or businesses go broke in the absence of non-stop government bailouts.

  5. Gary: this time they may mess with the reward programs and gift cards. These won’t be ‘normal’ bankruptcies where profitability is possible minus the debt. Profitability can’t return until everyone starts being honest about the virus.

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