Tag Archives for subsidies.
Why are airlines calling for a ‘clean extension’ of payroll support? It’s the most expensive unemployment program there is. While Congress and the President wrangle over how much to cover in additional unemployment for laid off workers, airline workers would get 100% of salary not to work and the government would effectively be paying airlines a 100% premium to do it.
A couple of readers have asked me for a simple summary of the reasons it’s a bad idea for the federal government to offer another round of payroll support funding. This will duplicate much of what I’ve already written, but in a manner that might be more easily shared with legislators and opinion leaders.
The federal government picked up the tab for a majority of airline payrolls during the pandemic, but that money runs out September 30. The argument initially was this would be a bridge to recovery, and it was important to keep workers attached to their airlines so they would be ready to support economic recovery once Covid-19 was over. Now we know, though, that the pandemic will have longer-lasting effects, airlines won’t need all of their employees again for several years, and they’ve already started to shrink their payrolls.
Omni Air is a profitable ‘deportation airline’ operating charter flights for the Department of Homeland Security, and before securing the $67 million bailout they were awarded a new $78 million Defense Department contract.
They take deportation charters no one else will, billing the government as much as $11,000 per passenger. Their CARES Act funding appears to cover more payroll per person than any other airline receiving government funds.
Lufthansa was given slots at congested airports – a huge government subsidy. Those slots were made perpetual property rights of the airline. That’s a barrier to competition. The E.U. has rules against subsidies. To waive them, and allow Germany to provide a $9.8 billion injection into the airline, they wanted competition, but they’re unlikely to get it.
Taking money from poor people in Africa to give to airlines is bat crazy. GDP per capita in Sub-Saharan Africa (2018) was US$1586. In some countries it’s much lower. 18 countries in Africa are already at their capacity for debt. Safe drinking water strikes me as a higher priority than airline subsidies, and in the current pandemic I’d focus more on lack of testing and lack of ventilators and personal protective equipment than giving it to failed airline executives.
Hotels are in line right behind the airlines looking for a bailout – even the Walt Disney Company. So are airport workers, and now Boeing is raising its hand too. We need to reserve government’s response for where it makes the most leveraged difference to society as a whole. There are lessons from China on what’s coming down the road.
The economic challenges aren’t primarily in travel, that’s just what’s slowing down first, and when everybody is bailed out no one is.
What we care about as a society is that an airline industry exists. The reason for government intervention is to prevent economic contagion (the spread of one failure to another). That was the argument for bailing out banks during the financial crisis, and it doesn’t exist in the same dimension with airlines. Nonetheless the industry is an important one once we’re ready to recover.
However the planes will still exist. The airports and gates will still exist. Skilled pilots and mechanics will still need work. The only reason to intervene will come later, if at all. Once airlines are in bankruptcy the relevant question is if they keep flying. And that’s dependent on available new capital during the bankruptcy process. Shareholders should take their haircut first.
Airlines are facing an existential crisis in their business, as bookings dry up and customers stay home. Other businesses, often smaller businesses, are facing a crisis too. People aren’t going out to local restaurants. Other businesses are closing down, and not all of their employees are being paid.
But airlines are politically well-connected. Delta, United, and American have all spent time lobbying for government handouts this week. Here’s the form subsidies are most likely to take.
My hometown airport, Austin-Bergstrom, is offering subsidies to airlines willing to start non-stop service to Hawaii, Amsterdam, Beijing, Dublin, Paris, Seoul, Shanghai, and Tokyo.
Not all of these routes are likely (or even plausible) but most are — for the right amount of cash.
Delta complains that Qatar Airways owns 49% of Air Italy and so Italy’s number two carrier is really a stalking horse for the Doha-based airline. Meanwhile Delta owns 49% of Virgin Atlantic, and most of the rest of Virgin is owned by Delta’s partners. Delta is also a huge fan of subsidies but only when the subsidies are going to them.
So is it any surprise that Virgin Atlantic is ceasing its three to four times weekly London Gatwick – St. Lucia flights June 8, 2020 because the island wouldn’t pay Virgin $2.5 million in subsidies?
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 »
