Just Say No to Another Federal Bailout for Bloated, Wasteful Airlines
By Robert McGarvey
Airline executives and their lobbyists are thick as locusts on Capitol Hill as they make a last minute push for another federal bailout. Their opening bid is $25 billion. But they would take more. And some inside the Beltway support this public largesse.
What’s wrong with that? The better question: is anything right with the idea?
Look, I take no joy in the many tens of thousands of unemployed airline employees. It’s a bloodbath. In Phoenix, for instance, the number of flight attendants has gone from 1900 a year ago to around 1000 today. That’s a lot of human suffering. Airline employees and those in related industries have gotten screwed in this pandemic and, often federal aid that was supposed to go to them, in fact went to executives, according to a US House report.
But face this reality: with or without new federal handouts, the airline business is going to shrink. By a lot. The chairman of United has said carriers may shrink by half.
The International Air Transport Association says air traffic will not reach pre-pandemic levels until 2024 and maybe not that quick.
Rising skepticism about the Trump tainted vaccine program – with New York and California governors both saying go slow – makes it ever less likely that many of us will flock for vaccines in the early going. And yet most experts say air traffic will not begin to rebound until vaccines have been widely distributed.
Surviving airlines will in fact shrink – they will literally often fly smaller planes and they will also shrink route maps.
And a lot of airlines just will go bust.
Many already have. Here’s a Forbes list from June. LATAM and Avianca had already filed bankruptcy (although both are seeking to reorganize).
In the US, View from the Wing has said the US carriers most likely to have their day in bankruptcy court are American and United.
According to CNBC, 43 commercial carriers already have failed outright this year. More will. The CNBC story ominously warns that historically airlines build up their cash reserves in the summer so they can survive the lean winters. This year winter is coming but summer has been a bust. Buckle up. Many more carriers will fold.
Haven’t I just made a powerful case for why we need massive federal bailout monies for airlines and we need it now? Nope. That would be the proverbial good money after bad.
Writing in the Los Angeles Times, author Roger Lowenstein (“America’s Bank: The Epic Struggle to Create the Federal Reserve“) said: “The urge to rescue the airlines flows from good intentions, but it is not a smart way to help the economy and it will reward CEOs for serial mismanagement and self-enrichment.”
Lowenstein added: “There is no reason to single out employees of a particular industry for favored treatment. And the airline industry is among the least deserving. In fact, the bailout will reward the carriers for egregious overcompensation and share buybacks.”
Writing in Wolf Street, Wolf Richter documents the many billions airlines spent in recent, flush years on stock buybacks, enriching executives and some shareholders. This is money that could have been tucked away for the inevitable rainy days – airlines are cyclical industries that get battered in recessions. They also are battered by rising petroleum costs. Bad times are inevitable for them. But, no, US carriers did not stach cash. They spent it on stock. Per Richter, “the big four airlines blew, wasted, and incinerated $44.6 billion in cash on share buybacks from 2012 through Q1 2020.”
In 2017-2019, executive compensation at just the top three carriers hit $325 million.
If they had held onto just half of the dough spent on buybacks and bloated paychecks they would not be on bended knees begging the House and Senate for yet more free money.
And they already got $25 billion in cash to cover payroll plus a like amount in low interest loans in April from the federal government. That money ran out in late September, said the carriers, and thus the rounds of layoffs.
There is no reason whatsoever to think airline executives will behave more rationally and prudently going forward. They have a long history of blowing bailout cash – and then yet again getting caught flatfooted in the next bad economy.
It’s time to go Darwinian. Let those that can survive – by virtue of their wits, budget cutting and strong management – survive. The others will perish. There can be scant optimism about the future for today’s airline executives who are good at creating personal wealth but not much else.
And as the public’s appetite for air travel rebounds, new solutions will emerge.
It was once inconceivable that the US economy could function without GM and Ford – and now does anyone notice they are still here? Tesla’s market cap is double GM’s and almost three times Ford’s. And we are not short of automobile options.
Only 60 companies in the Fortune 500 in 1955 were still around in 2017. We are in an age of creative upheaval. And so it comes for air carriers.
There is plenty of reason for a similar embrace of transformation in air travel. When the passengers are there, so will the new carriers.