If We Help Bailout the Airline Industry, Should We Get Something in Return?
Jeff Edwards March 19, 2020
A New York Times op-ed contends that before U.S. taxpayers are asked to bail out the airline industry, the carriers–which have enjoyed unprecedented profits over the past decade–should be required to return the favor by giving something back to fliers.
“I don’t think we’re ever going to lose money again.” –American Airlines CEO Doug Parker September 28, 2017
An Immediate Cash Infusion
As the COVID-19 pandemic continues to ripple through the world’s economies, it’s clear that many businesses will need government assistance to survive. The U.S. Airline Industry, through it’s lobbying arm Airlines for America (A4A), has already outlined their needs: an “immediate and medium to long-term assistance” program that includes an immediate infusion of cash, government-backed loans and tax relief for the floundering airlines.
“This is a today problem, not a tomorrow problem,” A4A President Nicholas E. Calio said in a statement unveiling the plans. “It requires urgent action.”
A Counter Proposal
Although there is little doubt the airline industry will require bailing out, some see this as an opportunity for a counter demand: consumer protections.
In a March 16th op-ed titled “Don’t Feel Sorry for the Airlines,” business analyst Tim Wu argues that after years of multi-billion dollar profits, the airlines could have easily been in a position to survive the current reversal of fortunes. Instead, he says the airlines spent billions of dollars on stock buyback initiatives designed to inflate share prices all while soaking the flying public with increasingly insidious hidden fees.
“We cannot permit American and other airlines to use federal assistance, whether labeled a bailout or not, to weather the coronavirus crisis and then return to business as usual,” Wu writes. “Before providing any loan relief, tax breaks or cash transfers, we must demand that the airlines change how they treat their customers and employees and make basic changes in industry ownership structure.”
The Other Issue: Buybacks
Wu isn’t alone in his belief that any aid packages for the airline industry should come with very specific strings and consumer protection guarantees (including regulating seat size and capping ancillary fees). Several lawmakers, including former presidential candidate Elizabeth Warren, have indicated they will not support any bailout that does not put restrictions on stock buyback schemes and guarantees that workers will earn a living wage.
“Airline executives spent billions on stock buybacks and are now asking taxpayers for billions,” Senator Warren wrote in a March 17th Twitter post. “We need to help airline workers, but that money should come with serious long-term change to the companies—no more buybacks, a $15 minimum wage, and more.”
Airline executives spent billions on stock buybacks and are now asking taxpayers for billions. We need to help airline workers, but that money should come with serious long-term change to the companies—no more buybacks, a $15 minimum wage, and more. https://t.co/CkXjGVXzRS
— Elizabeth Warren (@ewarren) March 17, 2020
The airline industry, perhaps not surprisingly, insists that now is not the time to put onerous new restrictions and regulations on struggling carriers. The airlines say there is a much bigger issue to focus on right now rather than concerns over seat pitch and ancillary fees; officials point instead to the millions of workers who depend on airlines for their livelihoods.
“U.S. airlines are in continuous conversations with the Administration, Congress and labor unions in an effort to secure financial assistance from the federal government to protect and preserve the 750,000 jobs of hardworking men and women who are directly employed by U.S. airlines, as well the 10 million jobs supported by the airline industry,” A4A officials explained. “This includes pilots, flight attendants, mechanics, gate agents, ticket agents, parking attendants and many more. Our employees are truly the backbone of the U.S. airline industry and our greatest resource, and U.S. carriers are doing everything in their power to protect their livelihood.”
What changes would you like to see in the airline industry? Let us know in the comments section.
You’re Reading
@bwallet: Just because the market has created the airlines as is doesn't mean we are not in front of a market failure. Market failures are created when far-from-ideal outcomes occur from a market operating under a certain set of regulations. All markets have regulations, spelled out or otherwise, if only the law of contracts and criminal laws against theft. These are decided by the state, and private operators react accordingly. Just consider what would happen if we were to tell coal-fired power plants they no longer needed to care about streams and rivers. Here, the airlines, operating under the current set of regulations, have generated planes that are far, far too loaded for safe operation in emergencies. That is what the current regulation framework brought us. It is not optimal, no more than letting car manufacturers not include seat belts or airbags to save on cost, banking for the customers to go without in exchange for a better price. The current regulation framework also created an oligopoly that is far from operating like a perfectly competitive market. In fact, we got "innovations" like basic economy and fees that have exploited the differential in information available to different stakeholders to fool clients. Sure, we are frequent fliers, we know better than to fly Spirit and be asked to pay all bags etc. Not everyone is the same, obviously. Ensuring a common standard ensures these kinds of sub-optimal outcomes go away. And no, I am not saying "kill all innovation". I am voting for smart regulations, enough so the companies have the incentive to properly serve their customers in a safe and non-predatory manner.
Call me crazy, but I think what we get as American taxpayers is a functional airline industry. If we don't do something, we may lose many or even most if not all of our airlines. That would reduce competition and complicate all of the things that people are unhappy about. Unhappy that an airline has 29" seat pitch? Fly a different airline. Want bigger seats? Buy first class tickets. Want more bags? Pay for them. Why should I pay a higher ticket price so that you can get two bags for free. We get what we pay for, and the public has, by its own choices, designed our airlines.
A very small concession that I hope gets packaged into this: fee-free family seating I don't care if it's in the last row with no recline, or if the lav is nearby, but I would like to know that if I fly with my 3-year-old that we can sit together.
If we bail them out, I think both change fees and seat pitch should be regulated. For change fees, I'd say $0 for changes made more than 60 days before departure. There's simply no justification for a change fee when the change is made that far in advance. Within 60 days, I'd allow maybe $50. The current $200 fee assessed by most major US carriers is egregious. There's also a public health argument, by the way. If someone is sick, even if it's not during a pandemic, it should be easy for them to change their plans. We don't want people to fly when they're sick just to avoid a $200 change fee. For seat pitch, I'd say the requirement should be somewhere in the 32"-35" range. We currently have carriers with 29", and that practice should be banned.
When "we" bailed out the banks, we got <1% interest on savings, 30% APR on CC, and higher fees. Then the CEOs got huge bonuses. History is going to repeat, just this time with the airlines.