Markets

The Case Against Another Airline Bailout

Generic image of a plane mid-flight
Credit: iStock photo

I try hard not to come across in my public musings sounding like the angry old uncle at the Thanksgiving table, I really do. I mean, there is more than enough of that around these days, reaching even to the upper echelons of government, but there are some things that just make me mad. One of the main ones is hearing airlines bleat and ask for yet more taxpayer money to help them out of a hole that, in so many ways, they dug for themselves.

Look, we all know that the global pandemic that has hit them so hard wasn’t their fault. It was nobody’s fault. That being said, if any blame can be handed out at all, it is in terms of a lack of preparedness in the face of what, with hindsight, looks like an inevitable problem. I am not talking specifically here about the problem of a virulent global disease. One could argue even that was predictable and that the lack of a planned, coordinated Federal response to it despite warnings dating back more than 15 years is inexcusable, but I am talking here specifically about the airlines.

As corporations, they know better than most that no matter how steady and consistent the recovery has been since 2009, the good times were never going to last forever. They never have and never will. There is no predicting what will derail things, of course. It could be a terrorist attack such as what happened in 2001, a virus now, or even something seemingly unrelated to their business, like the housing crash in 2008. Whatever the specifics though, long periods of good times are always going to be disrupted at some point.

That is why most big businesses have what is essentially a Keynesian approach at the microeconomic level. When profits are high, they reduce debt, hoard cash, and shore up their balance sheets in any way they can. Then, when the bad times come -- and they will come -- they can draw on those reserves, borrow again if need be, and survive.

The airlines in this country, despite first hand knowledge of the cyclicality of the economy, didn’t do that.

In 2017, 2018, and 2019 alone, they made over $42 billion, according to the U.S. Bureau of Transportation Statistics. During that same time period, executive compensation at just the top three firms in the industry totaled around $325 million, according to salary.com. At the same time, tens of billions of dollars were used to buy back shares and, in some cases, pay dividends.

Don’t get me wrong, I have nothing against executives getting paid, nor shareholders sharing in profit as they should when times are good. It’s just that, like the rest of us, they should also share the pain when times are bad.

Oh, and don’t be fooled by CEOs who say they take no salary or maybe $1. I think most of us could survive on that if we too got over $10 million worth of stock issued to us.

I have more sympathy for the employees impacted by this crisis than the executives, but even there, I’m not sure that putting a $25 billion taxpayer Band-Aid on a gaping wound is the answer. Maybe the billions of dollars that are being spent making executives and shareholders whole, could be better used to continue to enhance unemployment benefits?

It is easy to dislike airlines as a group. When times were good, they squeezed consumers, making passengers pay for travel essentials like baggage, packing them into ever smaller spaces, and penalizing them should their circumstances change and they have to reschedule a flight. True, some of those were a product of passengers demanding cheaper flights and the airlines responding, but they responded in a way that prioritized maintaining margins over customer experience. Sure, you could say that these were the fault of passengers who preferred cost over convenience, and you wouldn't be wrong.

But what is not our fault as consumers is that airlines, who seem to experience a “crisis” every ten years, were so unprepared for this one when it came. They kept the profits when they were plentiful, and now want us, as taxpayers, to take the losses.

I’m sorry, but that just makes me mad.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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