Almost since the first government stimulus passed earlier this year, airlines have been begging for an extension. They knew without question fairly quickly that they wouldn’t be anywhere near normal by the time it expired on September 30. But, as it’s wont to do, the government failed to act before the program ended and mass furloughs followed. Now, the feds are finally back with an agreement that’s likely to be signed soon. That may sound good, but it’s going to be, shall we say, messy.
Back in the spring, the government rolled out the Payroll Support Program (PSP) for the airline industry. If airlines agreed not to furlough anyone, not to pay dividends, not to buy back stock, and not to pull out of any cities… well, then they’d get a ton of money. That “ton” of money was actually full payroll costs covered for six months. That’s a great deal, and so the airlines eagerly took it.
At the time, this was supposed to be a bridge over a near-term disruption, but that is not how this played out. It is going to be a long time until there’s enough demand to provide work for everyone who had a job in this industry previously. So, as the September deadline approached, the airlines warned that if PSP wasn’t extended, tens of thousands of people would be furloughed in addition to all the people who have voluntarily stepped away. The government couldn’t get anything done, and so PSP expired. It didn’t take long to find out that most airlines were not bluffing.
Sure, Delta came to an agreement to avoid furloughs, and Southwest kept delaying its decision, but led by American and United, more than 32,000 airline employees were furloughed. Those people either went on unemployment or found another job. I’d imagine many front line workers are sticking it out, hoping to be recalled. Meanwhile, management and administrative workers are more likely to have left the industry entirely for something more stable.
Fast forward a couple of months, and the feds have now gotten around to extending PSP. The language in the current version of the bill says that $15 billion will be set aside to pay salaries and benefits retroactively from December 1 through the end of March. All the same restrictions appear to apply, but it’s a completely different situation now. So, what happens?
American CEO Doug Parker is pretty happy about it. Here’s a short video he put on Instagram.
If the feds act quickly, American will have paychecks to furloughed workers in hand before Christmas. That’ll feel nice to be able to provide that, but that’s about as much praise as I can offer for this plan.
All of these people are being recalled to work… but there is no work that actually needs to be done. It’s not like there’s demand for a ton more flying right now. Even if there was, there is training required for many of the front line folks to get them back up and running again. That will take time. What’s more likely to happen is what I call the “bad public school teacher” scenario. Airlines will just pay people to stay home and do nothing. It is effectively unemployment insurance, but it’s a VERY expensive version of it.
If you take $15 billion and divide it by the 32,000 people who will get their paychecks back, that comes up to just over $468,000 per job. Sure, you could argue that Southwest, for example, is going to furlough some people if the money doesn’t come through. Fine. Let’s say there were 50,000 people saved here. That’s still $300,000 a person. Those numbers are absolutely ridiculous. If the government had just put that money into better unemployment benefits, it would have been a lot cheaper and more useful. Instead, it’s just funding the jobs of people who would be employed by the airlines either way. It just lets the airlines off the hook from having to pay.
Even with that windfall for the airlines, it’s still going to be disruptive. Airlines now have to shift to bring all these people back in from an HR perspective, and they have to figure out training, if there’s training to be done. Just as soon as things start getting comfortable, it’ll be March 31… and then PSP part deux expires again. Does that mean everyone will be gone that day? American didn’t say that, but as has often been the case, United gave the most blunt and fair assessment here. In a letter to the troops, United leadership said what everyone was thinking:
United has been realistic about our outlook throughout the crisis, and we’ve tried to give you an honest assessment every step of the way. The truth is, we just don’t see anything in the data that shows a huge difference in bookings over the next few months. That is why we expect the recall will be temporary.
And then we’re right back to square one again. If the government just paid them $200,000 each, we’d save billions. I’m not actually suggesting that happen, but I’m merely pointing out this plan is pure madness as is.
Think it can’t get worse? Consider all those people who took voluntary leaves after doing the math to figure out what was best for them. That math has now changed, and they might not have taken that same deal had they known otherwise. Now when they do come back, they probably won’t be nearly as positive about the whole situation as when they left.
This whole program is wasteful and messy, but then again, I suppose we could say that about the entire federal response during the pandemic. It’s just a shame money couldn’t be put to better use in the hands of those who really need it most.