We are now less than two months away from key CARES Act provisions expiring at the end of September, and that means there will be massive changes to the airline industry overnight starting October 1. As we creep closer, calls to extend CARES Act funding have grown louder. Those calls should be ignored. It’s time for airlines to make the necessary, painful changes for long term survival, even though it means a whole lot of people will be out of a job. A lot of you work for airlines, and I’m fully aware that you aren’t going to like this post, but there is a better way to handle this.
In mid-March — when COVID-19 had the US economy instantly unraveling — CARES Act support of the airline industry sounded like a decent idea in theory. After all, we had the president claiming it was a minor flu, and the idea that it would be gone just as quickly as it arrived had not yet been completely dismissed.
The dream of a V-shaped recovery meant this idea had good rationale. Since the airline industry plays an important role in keeping the economy moving, a bridge over that “V” would allow for a quicker recovery for the entire economy. The money would keep the airlines fully-staffed and in a place where they’d be ready to bounce back quickly sometime before October 1. And just in case the airlines didn’t understand this, the government put restrictions that said no layoffs could happen until that date anyway.
If we had experienced a V-shaped recovery, there wouldn’t be much to talk about. But since that time, the situation has changed. Most of the world now understands that COVID-19 isn’t going away any time soon. It is highly infectious, and a lot of people are dying. Some may downplay the impact of this virus, but it is utterly devastating to the families of the 150,000+ Americans who have died… and also to the economy on the whole.
From an airline perspective, we are on the third leg of what we can now only hope is a W-shaped recovery. When that begins to turn up again is anyone’s guess, but it’s clear that we are going to be stuck with depressed demand for some time. Within the US, things may loosen up if we ever figure out how to put a mask on properly and cases drop. But outside the US, there will be lingering concern about allowing visitors from countries who mismanaged the virus for a very long time. The US is at the top of that list.
Even when the doors open, travelers will be very hesitant to return. We saw that in the second leg of the “W” when only a small chunk of travel returned before the recovery froze. And international travel remains flat-lined. By next summer, I would hope that there will be broad ability to travel internationally again, but it won’t be in the same numbers. American has already said its long-haul schedule will be down at least 25 percent next summer. It describes that as conservative, but I’d call it wishful thinking. IATA says traffic now won’t return to 2019 levels until 2024.
With that background, the original CARES Act plan begins to make little sense, but you wouldn’t know that if you listened to the unions. This isn’t a criticism. It’s their job to protect the jobs of their members, so this is exactly what they should be doing. But when the Air Line Pilots Association (ALPA) says that the CARES Act should be extended to “ensure the stability of the airline industry and a robust rebound to passenger travel,” it now rings hollow. The chances of seeing a “robust” recovery any time soon continue to drop daily. Airlines need to prepare for that fact.
The CARES Act has kept airline employees in their jobs, and it has maintained service to every airport from every airline with few exceptions. Now that we know that this drop in demand won’t end soon, it’s time to step back and rethink how this should go.
The CARES Act’s Payroll Support Program set aside $25 billion for passenger airlines to pay their employees for six months. In January of this year, there were 452,933 full-time equivalent employees. That comes out to $110,000 per employee on an annualized basis. That is a lot of money.
Of course, we can argue that the government will get some of this money back if the warrants given in exchange amount to anything valuable, but regardless, it seems safe to say that this is more money than should be spent to keep the airlines fully employed when full employment won’t be necessary for a long time. It just becomes a jobs program, and not a great one at that.
The airlines are walking zombies now. They’re flying more flights than they need with far more employees as well. That’s why as we approach October 1, you see staggering numbers. United, for example, sent out WARN Act notices to 36,000 employees saying they could be furloughed. The number won’t likely reach that high in reality, but it will still be a large number if there aren’t more volunteers.
These are changes that are necessary, and I hate having to say that. It will mean a lot of people will be out of work. I believe in a social safety net, but I don’t think airline employees should have that net paying them to work in jobs that aren’t needed. That’s why this money would be put to better use funding extra unemployment coverage. That way, those who are most in need and don’t make a lot will be taken care of. And those who make a ton will have to settle for less while we all work through the pain.
Yes, some cities will lose airlines for the time being, and everyone will see reduced frequency. But the airlines need to come to terms with the new normal, and they can’t do that until they can shrink to a more reasonable size. More government aid may be good for employees, but it won’t help the airline industry make the necessary changes to prepare for the future. The government should take care of the employees through unemployment insurance, universal basic income, or some other broader program. Then the airlines can begin the hard task of preparing for a different future.