President Trump said on Tuesday that the federal government would help the airline and cruise industries. Details, though, are limited. However economic stimulus proposals being batted around Washington are bigger in nominal dollars than 2008’s Troubled Asset Relief Program and the 2009 stimulus law.
When Congress starts talking big dollars, industries line up. After 9/11 Congressman Jim Moran said “It’s an open grab bag, so let’s grab.” And that’s what the travel industry seems to be starting to gear up for.
The Travel Industry Is Hurting, And Feverishly Looking For Government Money
We know that travel bookings are expected to be down quite a lot and travel businesses will lose money. United Airlines President said on Tuesday that he doesn’t expect any major U.S. airlines to go bankrupt but might see that in Europe.
That isn’t stopping the industry from asking for money, however. And it isn’t limited to the airlines. Hotels are also looking for a bailout. The Executive Vice President of hotel lobbying group American Hotel and Lodging Association says,
“We’ve also met with the White House, they want to contain the virus first and foremost and simultaneously figure out how to provide help to impacted industries and employees.
“We have urged the Administration and Congress to look at things that don’t require a legislative fix… the last thing we want is a situation like in ’08 and ’09 where small hoteliers cant meet their debt payments, banks foreclose, and they own those distressed assets. We want to keep people in place even though occupancy is taking a dive.”
The Airline Industry Survived 9/11 And The Financial Crisis Without Government Money
Airlines didn’t receive a bailout during the financial crisis. They were persuaded to buy into federalizing airport security (creating the TSA) after 9/11 with the promise of money from a new Air Transportation Stabilization Board. The ATSB gave money to America West, US Airways, American Trans Air, Aloha Airlines, Frontier Airlines, Evergreen International Airlines, and World Airways.
Frontier later went through bankruptcy but still exists. America West later took over US Airways and then later took over American Airlines. The rest went out of business anyway.
Doug Parker testifying on the need for subsidies to the US airline industry in 2001
On 9/11 the airline industry was directly attacked. The theory at the time was that the 9/11 attacks meant the industry itself couldn’t survive without assistance. Ultimately government aid wasn’t necessary to save most of the airlines, and most of those that received assistance went out of business anyway. I believe U.S. air travel would be better today had America West executives not managed to take their bailout and parlay it into running the world’s largest airline.
Airline And Hotel Losses Don’t Present Systemic Risk To The Economy
I wasn’t a fan of bank bailouts but at least the argument there was about systemic risk to the economy as a whole. There’s no such issue here with bailouts for the travel industry.
Major hotel chains don’t own most of the hotels operating under their brand. Individual hotels could go bankrupt and the effect of that bankruptcy is limited. The property itself is still there, creditors take it over, and will sell it or recapitalize it. Some hotels might go out of business. Those are the ones that people do not want to stay at in the future.
The U.S. isn’t going to stop having an airline industry. U.S. airlines could even go bankrupt, though Scott Kirby says not to expect it. Delta, United, American Airlines and Frontier all went through bankruptcy and are flying today. Northwest, US Airways and Continental Airlines have all had at least one bankruptcy and are now merged with another surviving airline. (Continental’s second bankruptcy was precipitated by the crisis of the first Gulf War.)
Airlines can fly through bankruptcy. The largest U.S. airlines already have done do. And they can be recapitalized.
You may want to ensure that laid off workers receive help of some kind. You may want to ensure that a sick policy like the one American Airlines imposed doesn’t keep workers showing up sick, and that they’re able to stay home if they think they have a virus. Those things do not require a travel industry bailout.
Businesses Lose Money
In September 2017 American’s Doug Parker famously said American would never lose money again. But the nature of business overall is to make and lose money. Private investors take that risk.
Airlines have earned tremendous profits over the past 8 years. They have tremendous government advantages already including no foreign competition in the U.S. domestic market and a lock on gates at congested airports that keeps out new entrants. They’ve taken those profits and invested in their businesses. They’ve bought planes, and renovated terminals. And they’ve bought back stock. Hotel chains have earned record profits as well on the back of historically high occupancy and average room rates.
Private enterprise only works when investors bear the consequences of their decisions. Taking profit, and having the rest of the country subsidize losses, is a recipe for too much risk taking and an incentive for looting the firm (buybacks?) and leaving taxpayers holding the bag.