The sales pitch for airline bailouts during the pandemic is that the money would be needed ‘so airlines were ready to fly when consumers needed to travel.’ Yet airlines haven’t been ready, cancelling a nearly unprecedented number of flights even as schedules haven’t fully recovered to pre-pandemic levels.
Brian Sumers offers a defense of bailouts over at Skift discmissing these concerns.
Sumers cites $54 billion in airline subsidies, but that substantially understates the aid given to US carriers. $54 billion was the total of direct grants. Airlines also received $25 billion in subsidized loans. Federal ticket taxes were suspended for 2020. Airports and contractors received bailouts, too, and those benefited airlines.
The summary of his case is this,
Airlines cannot retrain tens of thousands pilots and flight attendants in a couple of months, ensuring they meet all Federal Aviation Administration requirements. Airline training centers are not big enough to process everyone at once. Maybe they would have been ready for summer 2022 demand.
Except that this is exactly what happened even with the bailouts. Employees got paid, but largely didn’t work and stay trained and current. And that’s why we have problems now. Airlines spent as little of the bailout money as possible, and didn’t do what was expected of them.
Sumers makes these claims as a defense of bailouts,
- The counterfactual of no bailouts is really bad. There would have been big furloughs at the start of the pandemic, and airlines would have scaled back their operations drastically. Maybe they should have and that might have limited spread of Covid-19. But that’s not an argument for the second and third bailouts in any case. We know what would happen without those, or at least the worst case, because the first bailout ‘expired’ (allowing airlines to furlough workers to their hearts’ content) in the fall. United and American furloughed approximately 30,000 workers. Delta and Southwest didn’t furlough anyone. And workers would have been recalled months later as travel recovered.
And Sumers says, “Meanwhile, at headquarters, it would have been a bloodbath, with thousands losing their jobs.” In fact this happened even with the bailouts. American and United shed around 30% of non-union workers each, calling the firings voluntary (take a voluntary out and keep travel benefits, for instance, or get fired with nothing at the end of the first bailout). American estimates the management terminations will save them $500 million a year and they argue there’s little lost to the airline having done this.
Sumers argues “carriers would have retired even more airplanes, or worse, defaulted on lease and ownership payments.” Maybe, American retired their Boeing 757s, Boeing 767s, Airbus A330s, and Embraer E-190s during the pandemic. That’s even the case for owned aircraft. And Sumers gives away the game here – the subsidies were a bailout of aircraft lessors and bondholders.
- Without subsidies things would be even worse. The unstated assumption here is that airlines spent all the aid money on readiness, and it just wasn’t enough to stay ready. That’s simply not true. American Airlines, for instance, is holding $20 billion in liquidity. They didn’t spend the money keeping pilots current. They weren’t running their flight simulators at full capacity throughout the pandemic. They didn’t have grounded planes used to give pilots the takeoffs and landings that would have had them ready to fly. Instead they met the technical conditions of bailout money, to keep people on payroll, while leaving employees grounded.
- If we didn’t shovel tens of billions to airlines, they’d be like rental cars today. That’s not true. Rental car companies sold off fleets and can’t readily add cars because of a shortage of cars. That’s not the case with airlines. There are plenty of planes on the market, and if airlines had sold off more planes there’d be an even greater glut. The difference with rental cars is that those companies compete with consumers for vehicles, and the vehicle market is constrained because production is hampered by lack of chips.
While I don’t think it’s correct to say, as Sumers does, that “[i]f consumers want to get anywhere by air this summer, at a reasonable price, they need to understand this is only possible because the government intervened and paid employee salaries during the worst of the pandemic,” he’s making a highly regressive case for government transfers.
- The average cost per job ‘saved’ with the second and third airline bailouts was around $1 million per job.
- Air travelers skew relatively wealthy, and his case is that all taxpayers (including low income ones) should be forced out of pocket to deliver “reasonable price[s]” to the well off. This, then, takes real gall:
Rather than criticize airlines for taking government money, consumers might want to thank their elected officials for subsidizing their summer trips.
The airline bailouts meant that taxpayers, rather than equity and debt holders, took a haircut. Only 10% – 15% of the money allocated in the second and third round of bailouts totaling $29 billion went to actually keeping people employed who might have otherwise been furloughed. And those employees weren’t kept working. In fact, American even withheld payroll support money from employees they pushed out the door in order to keep it for themselves.
Remember that neither Southwest nor Delta furloughed any employees, even when they were permitted to do so, yet they received the second and third payroll bailouts when they weren’t going to let anyone go even without government money. Delta had operational meltdowns over the Thanksgiving and Christmas holidays, and Southwest melted down in late June. They didn’t use the funds to keep their operation ready.
The piece suggests “people rely on [airlines], and the government had no choice.” But that’s a fallacy that completely misunderstands the airline business. The alternative to bailouts would have been bankruptcy, probably just for American Airlines although potentially for United as well. That might have wiped out shareholders, but United, Delta, and American have all flown through bankruptcy. In fact American’s predecessor US Airways flew through bankruptcy twice. United’s predecessor Continental flew through bankruptcy twice. And Delta and Northwest merged despite contemporaneous bankruptcies.
The planes and gates would still exist. The trained pilots would still exist. This was a straight money grab, with 90% of the funds going to investors and suppliers and not to workers. It was sold as ‘this will keep the airlines ready’ even though the money wasn’t spent that way. It was hundreds of dollars in theft from each and every American (or our children and grandchildren who have yet to be born).
So why does all of this matter? Because it’s going to come up again. Airlines will be back to government for subsidies in the future, and there’s now a baked-in expectation that investor downside is limited. It’s a ‘Congressional put’.