Carriers weren’t shy to discuss the tremendous hardship they’d be under and just how many jobs would be lost if they weren’t granted a bailout. But now that the recovery is here, the airlines seem to have forgotten who their friends were.
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Airline Bailout Money
The US Covid-19 Relief Bill earmarked an extraordinary $1.9 trillion to bail out millions of businesses across the country. Of that, the travel industry was one of the hardest hit, and airlines in specific requested $50 billion, of which $25 billion was initially approved.
The New York Times discussed a coming “bailout backlash” as American taxpayers are treated to a litany of abuse by carriers who they funded through their darkest days.
United Buying Planes
Scott Kirby rarely missed an opportunity to warn of just how many tens of thousands of flight attendants and pilots would be out of work without governmental support.
Then, in a story Matthew wrote this week, it was revealed that United Airlines is preparing to announce the purchase of 200 new airplanes. That rings pretty tone-deaf for a number of reasons. First, if the airline is successful enough to need that much new equipment on the strength of new air travel, perhaps the carrier is sound enough to return some cash to its financiers.
Second, there are hundreds of recently renovated aircraft on the used market. In fact, Delta is pursuing gently used A350-900s right now. Like other carriers, United sent a massive amount of their fleet into retirement in the desert ahead of their scheduled removal from the fleet. Airplanes that were completely fit for flying in March of 2020 are now no longer adequate even when equipment could be purchased at a discount.
As I equated it to a friend, “If I borrowed $10,000 to save my family from foreclosure, and then I invited you over to see the new room I added on, would you be [mad]?” It seems like an egregious repurposing of taxpayer money.
Across the country, hundreds of thousands of businesses closed permanently. Businesses that could have used the money airlines consumed to keep their operations (and employees) afloat. Now, all of those businesses that went away for good during the pandemic are still out of business without access to the extremely generous taxpayer funds that United seems to have no need for.
An astute observer will point out that these purchases will be for future aircraft so money today is irrelevant for purchases in future years. That may be true, but buying equipment at clearance prices is certainly a better look and likely a better business decision than buying new equipment that arrives over the next decade.
Airfare Is Ridiculously High
Travel demand is back in a big way. There are more seats in the US and more people to sit in them than at the all-time high in 2019. While it’s mostly leisure travelers, flights are full and that has pushed airfare to ridiculously high levels.
Airlines that are still flying today as a result of the Payroll Support Program are penalizing their financiers to recoup losses and make gains. Many American families struggled during the pandemic; to gouge them with absurdly high prices once it seems to have subsided is the kind of thank you that only an airline could give.
Frontier Tries COVID Fee
Frontier Airlines added a “Covid Recovery Charge” of $1.59/segment in May. The airline collected a variety of support from the taxpayers. The carrier was floated through its darkest days by the American people and, as a thank you, they received a tariff on their airfare.
But wait, there’s more.
Because the fee was not part of the airfare, the airline didn’t owe excise tax on the revenue. Frontier essentially robbed the American people twice. The carrier stopped charging the fee earlier this week.
Taxpayers Pay The Price
I argued both for and against the airline bailout. In a no-bailout situation, the high demand for travel now would be justified because those businesses took on both the risk and now the reward of the capitalist market. However, when airlines chose to accept the bailout, it more or less socialized the airline industry, and travelers now should enjoy normalized rates.
That hasn’t happened. Instead, the taxpayers have absorbed the losses and largely privatized the gains within those carriers. In some ways, taxpayers will reap the rewards of more successful airline stocks as some of the money was given in the form of stock warrants. That was a clever move for taxpayers by Mnuchin. For example, the US government was permitted to purchase thousands of shares of American Airlines at around $12 which is now trading north of $22/share. Whether those gains replace the cash outlay of the American people remains to be seen.
Commenters on this blog were skeptical about bailouts for the airlines who behaved poorly prior to the pandemic. They presumed that these same executives navigating dire conditions for some of the country’s largest employers would use the funds for nefarious purposes to enrich themselves like stock buybacks or terminal improvements at international airports. They were right (though not specifically of just how those executives would respond) and I was wrong.
What do you think? Did airlines expand on the backs of the taxpayer? Did they gouge with high airfare and ridiculous fees? Or was the bailout necessary to preserve jobs and this is just the natural course of events?
This is why the government should have taken a stake in each airline that received a federal bailout. In addition, they should have a moratorium on executive bonuses for 18 months.
Do you really want the federal government running the airlines? What exactly would that do?
The government wouldn’t run the airline…it would be akin to what the federal government did with GM following the 2007-2008 financial crisis where the received shares in exchange.
I agree! They are biting the hand that fed them and expect to like it. Besides the high prices right now, all of the cancellations and delays are beyond crazy.
You make an assertion that airfares are “ridiculously high” with zero evidence or proof to back up your claim. Compared to what? Sorry- that’s really weak and supported by nothing except a blanket assertion that you don’t like the fares being charged. Personally, while I’m paying more than the dirt cheap fares I paid last summer, I don’t think
In my experience they’re more than normal. I’d love to see some analysis behind this ridiculous statement. Prove it.
Airline management has been bad because its focus on alienating the White American passenger with anti white woke policies. Unions continue to guarantee poor service and flight attendants continue abusing their power over aircraft safety to make false claims against passengers to excuse their poor performance. Flight attendants are now government agents who falsely accuse people of human trafficking and enforce a ridiculous mask policy that makes someone a criminal for not wearing a mask when eating a quick snack. Flight attendants could ignore the stupidity and say no. They don’t. They go along with it. Executive pay at airlines is astronomically excessive because financial performance hasn’t been great (before 2020) and senior management shouldn’t be rewarded for going along with the woke crowd instead of saying no to anti white hate.
However, airlines aren’t the villain in the bailout. In the first place, it wasn’t their bad behavior that caused airlines to be in trouble. It was an extremist and reckless government policy to shutdown the entire world over a exaggerated cold. There was no free market involved. Government forced them down and it’s only fair government compensate them. Most of the bailout was in the form of payroll support. Either all these people would be fired and collecting unemployment or they continued to be paid with bailout money. Taxpayers had to foot the bill either way. All the money outside of payroll support the airlines received will be paid back with interest. The government made money on the bank bailout. The government will make money on the airline bailout. If all government programs worked this way, there would be negative taxes.
Fares are determined by the market. Airlines need to focus on long term viability and health. Excessive compensation needs to go because shareholders get the shaft and management has pursued woke policies that should receive condemnation. Airlines were forced to run unprofitable routes all summer and fall last year and forced not to layoff workers until a certain date. This cost airlines billions.
Of course airline ceos pushed for a bailout. Any business wants low interest money during a crisis. It was the unions, however, that put the political muscle behind the airline bailouts. Maybe they weren’t necessary. Maybe the airlines could have easily let go 90% of their staff, stopped running unprofitable routes, stopped paying government owned airports their rent, and used their rewards programs to secure funding and negotiate with the banks who own their planes/the lessors and Boeing/Airbus.
Exaggerate a cold wow! Way out of touch with reality!
The USA has had a privatised profit and socialised loss model to run the economy for 2 decades now.
In my limited opinion till people vote and hold their elected reps to account, nonsense like this will keep happening.
The state has always been a friend to monopolists and rent seekers. Get rid of the leviathan if you want to get rid of corruption and crony capitalism (fascism, really). When will progressives learn that the government is not your friend? They just can’t get over their overweening desire to tell others how to live their lives.
If fares are so high, then I would expect results to reflect that very soon. So you are saying airlines will start reporting huge profits right??
It’s stock will go waaaaay up right?? Then the Feds can exert their options on the airlines stock when the prices were all low, right?? I think the Feds have an option on UAl stock at about 40 per share.
I have a friend who works for frontier and he says they did not take a bailout. I do believe though that we should not have to pay for seats and baggage as we the taxpayers have prepaid them so to speak
I see your point; nevertheless, you have to see a little bit farther than just a couple of feet ahead you. To be straightforward and transparent, I work at a major airline. You might believe that I am biased, but I could say the same about everybody who pays an airfare. But beyond biased I can speak from the other side.
First of all, it was not a bailout. The money allowed to the airlines was speciffically for payroll which means it ended up in the (thousands of ) employee’s pockets (tax payer) -and not in the executives’ pockets, though indireclty they will obviously and ultimately benefit due to company’s overall performance.
Secondly, I was days off being unemployed/furloughed until the PSP was approved. Note the multiplying effect of the dollar. Me and thousands of my colleagues were able to go and spend those dollars locally.
Thirdly, I understand your analogy with the mortagge and United, but do you have information regarding the ups and downs of such airplane order?? I don’t, but hey I am sure that it the cost benefit will outwrigh the downside. Old airplanes are more expensive to operate, thence could lead to higher price.
Fourth, airlines are not still running becauseof PSP. Because of PSP airlines were able to not downsize. In fact, one thing that is hindering smooth transition from pandemic to “post-pandemic” is that some hobs did not qualify for the PSP and there are many operationally required staff that is not available because they were made redundant because they were not -as many would say- bailed out.
On the other hand, I am with you on that Frontier’s COVID fee is ridiculous. Low cost carriers operate under the concept of “customizable”travel which means you pay what you want, but certainly nobody wants to pay such fee and still nobody has the ability to customize their dare (in that sense) or opt out of that fee.
All in all, I see how you (and many) can be dissatisfied, but noboy is ever satisfied with a “bailout” I have heard it all about the 2008 banks “bailout,” but we need to get ahead of the curve and see the effect of those PSSP dollars have on the system. Once I frlt my job was secured, I began loosening my spending and circulating those dollars that also employed the waitress at the restaurant, the cashier at the supermarket, and so on. Not vrybdifferent from stimulus check’s ultimate effect. And by fhe way I got a stimulus check and I totally disagree with how it was tragetted (not targetted) under both administrations -I should NOT have been eligible. But thats way beyond my rank and paygrade.