San Diego Union-Tribune (Sunday)
THE AIRLINE BAILOUT BATTLE
Should the industry get a second round of federal government aid? Our panel of economists and executives weighs in.
ECONOMISTS
NO
Many small businesses and their employees are under great stress because of pandemic-induced drops in demand for their services. Airlines are not unique in facing a collapse in demand, so it is unclear why this sector should be singled out for favored treatment. Knowing that the airline business is highly cyclical, industry executives should have done a better job at preparing their companies for a significant disruption.
YES
The airline industry has been hit particularly hard by the pandemic, with both business and leisure travel down considerably. The industry is vital to the full recovery of the U.S. economy. While the economy has been able to get by with video meetings and other remote activities, eventually there will be a return to business travel, whether for B2B purposes or for meetings and conferences. Leisure travel is also important to the economy, particularly for a tourist destination like San Diego.
NO
If it were just a matter of getting through another few months, I would say yes. But it’s looking now like we won’t be going back to the old ways of doing things for some time. Airline travel is not going to be back to normal in six months, and longer term I expect the next administration and Congress to adopt measures that permanently reduce fossil fuel consumption. Some downsizing makes sense now.
YES
One in 14 jobs in the U.S. is dependent upon the airline industry, so this is too critical an industry to let it atrophy into a coma that is difficult to wake up from, once the economy bottoms out. The second wave of unemployment will hit sometime later this year, and we can’t save all businesses nor should we, but those providing critical transit are likely worth saving, with appropriate strings and conditions attached as we did with the auto industry.
EXECUTIVES
NO
Though COVID-19 dealt a blow to travel, the airline industry’s woes are not solely pandemic related. For too long airlines have racked up profits but opted to use the bulk of cash flow on stock buybacks. The practice favored shareholders over building reserves. Unfortunately, without another bailout, mainline workers and consumers will bear the burden of mismanagement. Airlines need to figure out how to keep going as main street businesses must do.
NO
Unfortunately, many of the airlines have primarily elected to spend their money on stock buybacks and compensation versus building the necessary cash reserves to help weather a bad financial storm. If the government continues to enable companies (or industries) with bailouts, then they may create or foster zombie corporations. The U.S. can’t continue to prop up unprofitable businesses — it isn’t sustainable. Not receiving further bailouts may allow some airlines the ability to restructure, shrink to meet diminished demand, and return to profitability.
YES
While continued support for the airline industry risks being corporate welfare, the collateral damage is significant. Carriers may further consolidate flights out of larger hubs — fewer options and direct flights for all of us. Raytheon is cutting 15,000 positions across its aerospace engine and parts divisions. Hotels, restaurants, event venues and attractions are already paying a steep price. Without a stimulus package for tourism industry payroll, many bankruptcies will occur and unemployment will jump.
NO
If preserving jobs is the key imperative, then initiatives that don’t favor one industry over another, such as extending the Payroll Protection Program, should be considered. If it is an attempt to support essential services, there are other industries, such as health care and education, that are far more deserving of CARES Act grants than airlines. There should also be controls put in place to restrict or eliminate practices like stock buybacks with the relief money.