There’s been a whole lot of talk about bailout options for the airline industry as our economy grinds to a halt, and naturally, there are differing opinions. There is no question in my mind that a bailout is necessary, but I would structure it in a way to get money to those who need it most.
The starkness of the situation is incredible. United led the charge with what seemed like big cuts early on, but those have been overshadowed quickly. American is running fewer than 3 daily long-haul widebody flights into May. Delta just announced it would slash 80 percent of its international flying and 70 percent overall. Airlines all over the world are in desperate need of money. They are already digging into their cash reserves, and those aren’t going to last long enough.
This event is, of course, outside of airline control. Travel has disappeared due to fear but also due to government regulations which are preventing travelers from going on trips even if they wanted to. Some will argue that this doesn’t matter at all. Airlines suck, and they should be punished. No bailouts.
Those arguments are being backed up with the usual angry rants. The most popular complaint these days focuses on the fact that airlines bought back a ton of stock instead of saving all their cash for a rainy day, so they don’t deserve the bailout. I don’t understand this.
This is how businesses work. They are there to make money for their owners, and if there’s enough cash to run the business properly, then it’s a perfectly valid decision to use additional cash to buy back stock. Personally, I don’t like that strategy, but that’s a difference of opinion. It’s certainly still a responsible way to run a company. These airlines have billions in cash, and for any normal downturn, they’d be fine. This isn’t a normal downturn.
The reality is that even the best management team isn’t going to be able to get out of this kind of disruption. Without a relatively quick change in fortunes, every airline will go bankrupt. That’s not good for the economy, and a bailout is well worth it. But how should it happen?
Some proposals have me shaking me head. For example, there was talk about waiving the 7.5 percent excise tax on domestic tickets and diverting the passenger facility charge from airports to airlines. That makes no sense, because people have to be BUYING tickets for those taxes/fees to matter. And if people were buying tickets, then the airlines wouldn’t need a bailout.
One opinion suggested that any bailout should come with strings that require capping fees and a host of other things. That sounds more like a horrible hybrid kind of nationalization than anything. I don’t find that argument compelling. Nationalizing airlines isn’t a good plan, but it’s better to go all the way than to keep them private and over-regulate them.
On the other hand, a bailout without strings won’t work either. The government isn’t going to just hand over money and let airlines do whatever they want with it. They put restrictions on after 9/11, and they will put more on here as well.
The way I see it, the biggest issue today is in keeping all of these hundreds of thousands of airline industry workers gainfully employed. It is without question in the airline industry’s best interest to lay people off as airlines grapple with ways to stay afloat in light of reduced demand. Sure, there is some revenue coming in the door thanks to credit card agreements, and non-air services, but for the most part, without much demand for flights, there isn’t a need for all those employees. That being said, keeping them employed should be the primary goal of the government.
For that reason, if I were the government, I’d just go tell the airlines that all those employees could come work for me for a short time.
I don’t mean that literally. The logistics involved would a nightmare. What I mean is that the government can reimburse (or pre-pay) the airline for employee wages. There might be some discussion around pay caps and rates and all that, but this would relieve a tremendous amount of pressure on the airlines by erasing a huge chunk of their costs. More importantly, it would keep people employed.
We need all these employees making money and spending it. That’s how the economy doesn’t die a horrible death. This kind of bailout would help everyone, and it would be effective. That’s why it probably won’t happen.