The Government Can Now Order American Airlines To Continue Flying To Small Cities

American Airlines has been saying that if Congress doesn’t pass another $25 billion in payroll support, which forbids airlines from laying off workers and requires them to keep flying to all the cities they used to serve, that they’re going to drop service to a number of small towns.

But is that even true? American pledged to terminate service to 15 cities on October 7, but they’ve already backed off of four of those:

  • They have to keep serving Joplin, Missouri and Sioux City, Iowa through the end of the year (unless someone else picks up minimum service first) because they had entered into Essential Air Service agreements for those cities.

  • They will keep serving Roswell, New Mexico – where they have planes stored and send mechanics flying in and out.

  • And they’ll keep serving Stillwater, Oklahoma because the state’s politicians there pledged to support their effort to obtain more subsidies.

Now though American has taken out a $5.5 billion subsidized CARES Act loan. One of the provisions of the CARES Act airline loan program is that, in accepting the funds, they agree that the Secretary of Transportation can order them to continue air service to cities they served prior to March.

SEC. 4005. CONTINUATION OF CERTAIN AIR SERVICE.

The Secretary of Transportation is authorized to require, to the extent reasonable and practicable, an air carrier receiving loans and loan guarantees under section 4003 to maintain scheduled air transportation service as the Secretary of Transportation deems necessary to ensure services to any point served by that carrier before March 1, 2020. When considering whether to exercise the authority granted by this section, the Secretary of Transportation shall take into consideration the air transportation needs of small and remote communities and the need to maintain well-functioning health care and pharmaceutical supply chains, including for medical devices and supplies. The authority under this section, including any requirement issued by the Secretary under this section, shall terminate on March 1, 2022.

American has already been ordered to continue flying to Joplin and Sioux City through the end of the year but that can be extended, under section 4005 of the CARES Act, until March 1, 2022.

Whether American Airlines stops serving any city, leaving them without air service, is now entirely at the discretion of the federal government. No further legislation or subsidy is necessary to require American to continue service. Any city losing American Airlines air service, then, only does so because the federal government is making that choice.

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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Comments

  1. Sounds like Amex when they asked for bailout money in 2008. They weren’t a bank then but in a hurried greed to lay hands on tax-payers monies, they didn’t realize they had to be a bank first to qualify hence the short-lived Bluebird tie-in with Walmart.

  2. I mean… American willfully entered into this agreement, no?

    I could be way off, but the tone of this reads like there’s been an affront to AA, by the US Government and while this is certainly interesting, it doesn’t seem to warrant that contemptuous suspicion from my POV.

    Your preference for small government is not lost on me, but this seems like one of the times the government got it right and they certainly didn’t coerce AA into this.

  3. @Jake from MSP – I think you misread me, not an affront at all! I don’t take this as ‘an affront to AA’ at all.

    In fact the government *may not act*, despite having the legal authority now to do so. Instead they may let American lord the loss of service over members of congress to extract even more subsidies.

  4. @Gary

    Your reply is genuinely appreciated! As much as I hope not, I think you’re probably dead on with AA maneuvering for another round of rent seeking…

  5. And why shouldn’t they? AA deserves to ask for help like other Airlines have They are essential to our way of life! We all get surprised at what’s in the fine print from time to time!

  6. American Airlines has received massive annual subsidies for something like the last 40 years for providing “essential air service” to mostly Republican areas. It’s a little late for American to be changing its mind on this particular brand of GOP corporate welfare. And no, it’s not the Government’s “fault” if American breaks its agreements on these. Even if we all lived in Libertarian Paradise, breach of contract would not be a good thing.

  7. All of this and many comments here are only personal opinion. When running a very huge business such as any major airline many factors come into play. People who start talking left and right sides of the equation are way off base and not knowledgeable about running a business and making profit. No business can continue without profit. It’s not about politics. It’s about providing goods and services with a profit in mind to grow and keep the business afloat. Share holders want returns on their investments. It’s that simple. Profit must be made.

  8. American uses smaller carriers, subcontractors, to fly to those cities. They are still supporting other companies usage of their own resources and American’soldiers brand, thus helping to keep smaller companies afloat. Actual employees of American will still get laid off.

  9. I will never fly American Airlines again. Over the summer we took a vacation and we flew from Allentown to Tampa. On the returning flyt back we found out that American Airlines does not fly into Allentown anymore on our stop over in Philadelphia. So they left us high and dry in Philadelphia, at which point we had to rent a car to get to Allentown. We were never informed of this via email. Hence, we will never use a third party to arrange any vacation plans. Also, we will never fly American Airlines again.

  10. PROFIT, PROFIT and more PROFIT
    Have you seen what the Corp exec pay themselves at American airlines??
    I’m surprised AA don’t become non PROFIT as non PROFIT is a legal scam for making all profit and being tax exempt
    Goodwill or should I say bad will is making PROFIT hand over fist and called non PROFIT, all these fancy churches, charities, many health care facilities are non PROFIT and their executive staff pay them selves hundreds of million’s in sallaries and bonuses
    What all this got to do with American airlines u might ask, well the answer is that “it’s all more if the BS same”
    They feed ya the american “dread” while you are sleeping
    It’s all smoke n mirrors, go ahead, keep drinking the kool-aid bitches

  11. If the states would reopen their economies and bring an end to these now baseless lockdowns, we wouldn’t have to worrying about subsidies or loans at all.

    Btw – this week the CDC released COVID surviabilty rates. They are as follows:

    COVID-19 SURVIVAL RATES :
    Ages 0-19: 99.997%
    Ages 20-49: 99.98%
    Ages 50-69: 99.5%
    Ages 70+: 94.6%

    If your Governor is keeping your economy closed and preventing you from working with survival rates like these, he has made a deliberate and purely political decision, not one based on science and data…

    https://www.cdc.gov/coronavirus/2019-ncov/hcp/planning-scenarios.html

  12. American received part of the bailout to all airlines in order to keep people employed.

    The way it is written makes it sounds as though AA received all of the money.

    AA has not profited and is not subsidized by the government,

  13. @Linda Turbide the claim “AA has not profited and is not subsidized by the government” is simply false.

    1. American received $5,814,516,440 in payroll support funds. According to the airline this covered ~ 75% of prior year payroll for the same time period. They weren’t going to lay off 75% of staff, which means the difference was used to cover payroll they’d have incurred anyway [that’s a subsidy].

    2. Covering American’s payroll pushed down the break-even factor on flights they operated. According to Vasu Raja their break-even load factor while payroll was subsidized ranged from 9% to 25%, depending on the price of fuel at the time. American is filling flights and making money they wouldn’t have made (even if they’re losing money overall, they’re losing less than they’d have lost) because the government is picking up the payroll tab.

    3. American has benefited from the suspension of the domestic airfare tax for 2020

    4. American is receiving a $5.5 billion subsidized loan from the government at an interest rate that is below market.

    Now, that just talks about CARES Act subsidies. They’re also benefit from slot use waivers, and reductions in airport charges passed along because of CARES Act payments to airports.

    We’re not getting into the subsidies they were receiving *prior to the pandemic* which also rebut the claim that American ‘is not subsidized by the government’.

  14. Just another example of welfare queen red states having a standard of living that is subsidized by the blue states they are intent on destroying. Cut us loose, folks. Kick us out of your trashy trailer park country.

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