Airlines Must Be Better Prepared For Events Like Covid-19

As I noted in the yesterday’s post, airlines are suffering from a devastating collapse in demand for air travel that is expected to last for several years.  In an employee memorandum today Delta Air Lines CEO Ed Bastian described as “heroes” the 17,000 Delta employees who accepted packages for voluntary early departure.

Here is the memo in its entirety.

Two things stand out.

First, even though 17,000 of its 75,000 employees worldwide are leaving, Delta makes it clear that reduction only moves it closer to the goal of minimizing the need for layoffs.  By keeping the threat of layoffs on the table, Delta can still pressure Congress for another bailout.

The warning about layoffs cannot be confused with attempted leverage to extract union concessions because pilots are the only large work group that is unionized at Delta.  Delta is smart enough to avoid a battle with its pilots now.

Second, Bastian states in the memorandum that:  “Never did we think we’d face a year in which our revenues would evaporate overnight…”

Taking Bastian at his word, Delta’s lack of forethought is surprising and needs to change.  It is not just Delta.  The whole industry has been thinking, or not thinking, the same way.  In just the last 20 years alone, airlines have been severely affected by several unforeseen events including 9/11, SARS, the financial crisis of ’08, and now Covid-19.  To quote the wise, old saying, “shit happens.”  Any company that thinks it won’t is foolish.

Perhaps some of these events are too severe for airlines to be able to compensate for by themselves.  However, U.S. airlines have had no incentive to even try to prepare for these events because they are confident that they can rely on their lobbyists and politicians seeking reelection to get Uncle Sam to bail them out and add to our enormous national debt.

In March 2020, Congress approved $32 billion in grants (which do not have to be repaid) to cover payroll of airlines, cargo carriers, and airline contractors through September 30, 2020.  Currently, lawmakers are promoting an extension to the current airline employee payroll protection grants through March 31, 2021.  Something tells me that won’t be the last time.  The International Air Transport Association thinks airlines will suffer from lack of demand and large losses for several more years.

Adding insult to injury, thanks to net operating loss carry forward, airlines weren’t paying taxes when they were making record profits the last few years. They won’t pay taxes now and for some time to come thanks to losses they have this year and will incur probably for at least another year or two.  So taxpayers bailout the airlines and the airlines won’t even have to pay taxes once they become profitable again.

When financial institutions received bailouts through the Emergency Economic Stabilization Act of 2008, there were tests and limits established to ensure banks were being operated in a manner that didn’t jeopardize the financial system.  In exchange for another bailout, would airlines agree to measures that would leave them better able to deal with stuff like Covid-19?

Airline employees deserve assistance to be sure.  Keeping them on seemingly indefinitely at full pay with no work to do seems like not the best answer.  It may be years before the airline industry recovers enough to support pre-pandemic employment levels.

Final Thoughts

We would all be foolish to assume Covid-19 is the last major event that will affect airlines negatively.  With a global population of 7.7 billion and counting being packed more and more into congested urban areas, serious disease outbreaks seem more and more likely.  Economies are becoming more interconnected and  international leisure and business travel was growing rapidly.  Problems in one part of the world will spill over to the rest.   Governments and businesses need to be more prepared.