More Airline Aid? I’ll Pass, Thanks

16

Monday’s AVweb homepage had a pair of whipsaw headlines that only 2020 could provide. At the bottom of the page: Airline Support Ends: Future Looks Bleak. At the top of the page: United, Union: No Furloughs Until 2021. As I was posting the latter story, I couldn’t help but feel we must have missed a few stories bridging this yawning gap.

Since we don’t get to peek inside United’s P&L—at least not for the moment—I’m kind of curious how the airline juggled its financials to get to this solution. Heretofore, with passenger demand still in the dumpster, United had warned that when the CARES money ran out—which it will on October 1—as many as 16,000 employees could be furloughed, including 2850 pilots. A failed bond offering in May forced United to accept more of the CARES loan money than it might have anticipated.

Of course, while Monday’s announcement is good for pilots, will the largesse spread down the food chain to the mechanics, gate agents, food services and myriad other upstream players in the airline business? As of this week, demand for air travel is just 35 percent what it was a year ago and it is stubbornly resisting a robust comeback. Nobody knows how long this is going to go on, but it’s generally accepted that if it’s much longer, the airlines will have to reconfigure their businesses to be smaller and leaner and defined more by contraction, much less growth.

A source inside Southwest told me that it has a solid cash reserve and is likely to succeed with a defensive posture longer than the legacy carriers can. Delta is reportedly similarly well positioned, but American Airlines might not be. We’re watching the financial news for a United-type deal for American. Meanwhile, in the balance is a second round of stimulus and financial aid that might include the airlines. But do they really need it? And is it justified?

This week’s AVweb poll finds that about 40 percent of readers say no, let the airlines fend for themselves. Not quite a third think they’re a critical industry and should get more propping up from government, while 22 percent say interest-free or low-interest loans are the way to go. I’m still in that third group, but I now think if United can make a deal with pilots that even includes potential pay hikes, it can damn well make a deal with taxpayers that includes a little vigorish. Lots of workers have been out of work since March and many aren’t getting any kind of ride at all, much less a free one.

When passenger demand collapsed in March, I was surprised at how many people said good riddance, the airlines deserve the drubbing because of their abuse of passengers at every turn. But airlines are made up of people and a lot of those people are pilots who are friends of mine. I don’t wish job loss, financial hardship and work disruption on them or anyone else, regardless of how the C-suite might merit a dope slap or too. While I remain sympathetic, when the airlines said they were dropping the much-hated change fees to entice passengers back, I had to contain the extension of my middle finger.

Philosophically, I’m not opposed to government assistance in the form of loans, as long as everyone agrees someone has to pay for this. The someones are generally taxpayers and now it should be corporations too who were recently given an attractive corporate tax rate break.

The Institute on Taxation and Economic Policy reports that since the corporate tax rates took effect, seven large airlines paid an average rate of 2.3 percent on $30 billion in pre-tax income during years when they were quite profitable. Virtually all of the companies, says ITEP, have deferred taxes by using depreciation-related tax breaks. So guess what? A trickle of revenue comes from the airlines, but suddenly, they’re a critical industry we can’t let fail at the expense of free money?

We have in this country a fetish for considering taxes as unbridled government waste, yet when the unforeseen happens—as it did in 2008 and again recently this year—we turn to the treasury for a loan of the very money we don’t want to pay. Or pay back. To be fair, not everyone follows this script—like the 40 percent who say let the airlines bail themselves out. I’m beginning to lean toward that camp myself.

What happens next will be an interesting chapter in airline history. Once a vaccine is available, say, in mid-2021, will demand coming roaring back? Given how far it has fallen and how far it has to go, I’m not so sure. I think the airlines are in for an era of contraction, higher fares and diminished service. I for one won’t be complaining about higher fares. It’s the quest for cheap seats that gave us less legroom, less shoulder room, seats that don’t recline, unbundling to the extent that United’s economy service provides just a seat and then begrudgingly.

With fewer seats costing more, one could hope for the return of the days when boarding an airliner in your underwear was unthinkable rather than just another fashion choice. One could also hope for back-to-back Powerball wins with checks delivered by the Easter Bunny. All three are about as likely to happen.

Other AVwebflash Articles

16 COMMENTS

  1. ICAO. The latest estimates indicate that the possible COVID-19 impact on world scheduled passenger traffic compared to Baseline (business as usual, originally-planned) would be:

    Full year 2020 (Jan – Dec)
    – Overall reduction ranging from 49% to 51% of seats offered by airlines
    – Overall reduction of 2,788 to 2,931 million passengers
    – Approx. USD 375 to 395 billion potential loss of gross passenger operating revenues of airlines

    Q1 2021 (Jan – Mar)
    – Overall reduction ranging from 26% to 45% of seats offered by airlines
    – Overall reduction of 393 to 635 million passengers
    – Approx. USD 57 to 90 billion potential loss of gross passenger operating revenues of airlines

    The actual impacts will depend on duration and magnitude of the outbreak and containment measures, the degree of consumer confidence for air travel, and economic conditions, etc.

    Not Good. Somebody do something!

    • Airlines are doing something Raf., they’re adjusting there operations to accommodate market conditions. Imagine that.

      • I’m hoping “somebody do something” about the COVID-19 pandemic, like finding a medical remedy, and quickly, before much of everything and everyone dissolves, worldwide. The downsizing of businesses to accommodate market conditions has a limit. It is near for some, and already there for others. Imagine that!

  2. Stop whining about coach seating. I just checked prices for a round trip between EWR and SFO on United in November, pulled the dates out of my arse. It costs $325 more each way to fly business class (just under $900 for a business class round trip, about $265 coach). If you can’t afford that, you shouldn’t be reading a general aviation piloting blog. Oh, and business class on a United 787 Dreamliner is a lie-down pod on the lap of luxury. I’ll never fly coach again.

    • Many of us simply can’t justify the additional expense for business class. $650 extra round trip is worth a lot of flying hours (almost 6 hours of flying time for the single-engines I fly, or 1.5 to 2 hours of helicopter flying time).

      And forget even having that option if one is flying for work. Every place I’ve ever worked had very strict rules about when you could get anything other than a no-frills coach seat, never mind something as fancy as “business class”.

  3. The airline industry has always had highs and lows. While Covid-19 is a unique situation, furloughs are part of the risk people take when working for an airline. I’ve been furloughed twice, I survived both times and when on to a 30 year career in the industry. I know pilots that have been sitting at home since March, while collecting 14-15k per month paid by taxpayers. Some of them are not current anymore. I know operation employees that are working as few as 4 days a month at full pay. If the airlines want to keep paying employees for not working let them, but don’t ask taxpayers to pay for it.

  4. “With fewer seats costing more, one could hope for the return of the days when boarding an airliner in your underwear was unthinkable rather than just another fashion choice. One could also hope for back-to-back Powerball wins with checks delivered by the Easter Bunny. All three are about as likely to happen.”

    Love the Bertorellisms…I look forward to them as much as the content!

    Since the taxpayer…aka…the bank of america ( small caps), and I am a defacto member of boa ( small caps), I approve of loans with interest combined with a payback window of time, very similar to the Chrysler government loan from the then new boa ( small caps) in the early 80’s. As load factors rise, so does the interest rate on remaining balances.

    boa( small caps) has been the go to bank ever since Iacocca negotiated that famous loan. The good news was, Iacocca was a great business leader, made good on all payments, paid off loan early, and refined the company and its products. That kind of leadership seems lacking in today’s world, especially aviation. Maybe to hedge against that leadership void, another point or two of interest needs to be added. I defer those decisions to my other boa ( small caps) brethren…and ever shrinking brethren.

    • Jim, great, now I have an indelible mental image of a boa constrictor wearing a small baseball cap. How does a snake even put a cap (large or small) on, much less keep it in place all day?

      • Thanks Richard M…After reading my comment and yours, I now have a similar image displayed in my mind of a boa constrictor wearing a baseball cap.

        We taxpayers…aka bank of america…does have a government financial snakelike constriction wrapped around our collective necks squeezing out not only our present money, but our future money as well.

        However, I am at a loss on how the boa constrictor gets the cap on, keeps it on, and keep it all day. My apologies.

  5. As the legacy airlines are begging the tax payer for more free money (again) others in the ‘Aviation Transportation Industry’ are re-inventing Air Travel while paying taxes. Flexibility is so very important. TWA, Pan Am, Eastern, Western… on and on went out of business because they where not flexible. Many of us call ourselves “Air Service” with an emphasis on “SERVICE”. Making changes with the times, technologies and demands. Many of us out here are capitalizing on the airline’s inefficiencies and failure to change. Stop with the ‘Doom and Gloom’ and ALPA talking points. Aviation is the answer to local, national and world travel. It’s not just for the elite unless we allow more dept and stifling regulation.

    If you need to travel 1000 miles, which form of travel will accomplish that with the least exposure to a virus? Highway travel (over 10 hours) exposes you to restaurants, hotels, rest areas and gas stations. Air travel (approx. 4-5 hours) exposes you to the flight crew, passengers, terminal occupants and the ground transportation to/from the airport.

    • “If you need to travel 1000 miles, which form of travel will accomplish that with the least exposure to a virus? Highway travel (over 10 hours) exposes you to restaurants, hotels, rest areas and gas stations. Air travel (approx. 4-5 hours) exposes you to the flight crew, passengers, terminal occupants and the ground transportation to/from the airport.”

      The big difference between the two modes of travel is that airline travel is a continuous exposure event of several hours duration while in flight, whereas driving is a series of short-term, sporadic exposure events. And most of that drive time is by yourself in the car.

      Exposure to viruses is not like bullets – one hit and you’re done. Instead, it takes a certain ‘viral load’ of pathogens to make one sick. The greater the viral load, the greater the chance of getting sick and also determining how sick you’ll get.

      It’s somewhat like walking to the store in the rain versus driving. Sure, even if you drive you’ll get a little wet running from the car to the store, but you won’t be soaked.

  6. In the past several weeks, the CEO’s and ALPA have with outstretched hands, urged Uncle Sugar for an extension of the financial aid. This to pay for employees despite not working since early March when the epidemic appeared. Their claim is based primarily on the premise that airline employees are essential workers and should continue to be carried on the payroll.

    I think more realistically a list of essential workers goes like this.

    Farmers, ranchers and food processors. Field hands that work to gather our crops and production workers that help in providing chicken, pork and beef to the daily consumer. Truck drivers that haul the goods to our stores and grocery workers that stock and sell the essential daily products that are needed in our society. The garbage truck driver to haul the excess of our consumption away to a landfill. The utility workers that supply our daily needs for water, gas and electricity. The mailman/woman that delivers reliably in the worst of conditions, mail that may include medicine, checks and most importantly, this year’s election ballot. Although I rarely need them, let’s not forget the medical workers, police and fire protection employees that are needed for societies’ welfare.

    By no means is this a complete list but one that comes readily to mind when I consider daily needs. In comparison, my last airline trip in February was to an exotic location to SCUBA dive, an activity that is by no means essential to my continued welfare. In fact, as much as I enjoy this sport, not getting on an airline for the remainder of this year and quite possibly all of next year does not present a problem at all.

    In writing this I come to realize; I was not really essential to my airline when I was furloughed in the Spring of 1980 for nearly five years and I question…what has changed?

LEAVE A REPLY