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.
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?