Airlines Face a Bailout Backlash
June 24, 2021
By Andrew Ross Sorkin, Jason Karaian, Sarah Kessler, Stephen Gandel, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni, New York Times
Bailouts have consequences
American Airlines confirmed yesterday that, amid delays trying to keep up with surging demand, it would cut nearly 1,000 flights in the first half of July. Fewer flights, especially if other airlines follow its lead, would drive up ticket prices and force passengers to delay travel plans, which means less money flowing to travelers’ desired destinations.
The airline’s move adds fuel to the debate about labor shortages. American said it had cut flights because of a shortage of pilots and airport workers. Critics said the airline should raise wages to attract more workers, especially since it received billions in government aid during the pandemic.
Companies that took bailout money could now face a backlash. Back in March, Andrew wrote that airlines — which received tens of billions in emergency assistance — would likely face criticism after the pandemic similar to what banks faced after the financial crisis. One example: Lawmakers in Philadelphia recently proposed a bill that would require airlines to pay for new health benefits for thousands of airport workers. American Airlines has tried to block the bill, saying the increased costs would force the airline to cut the number of international flights it offers from the city.
As Representative Conor Lamb, Democrat of Pennsylvania, told the Philadelphia Inquirer, “We just got done bailing out this industry. When you do that, I think it gives us a say in how their workers should be treated.”
Bailouts are unpopular, because they typically end up pricier and less productive than expected. Andrew estimated that the government’s initial pandemic grant to airlines cost $300,000 per job saved. Given these costs, airlines should brace themselves for similar requests like those in Philadelphia from lawmakers elsewhere.
Politicians sense public support in imposing additional costs on bailout beneficiaries long after the government has ridden to the rescue. The mechanisms for doing that include forcing airlines to keep flight schedules they say they can’t maintain or to pay workers salaries they claim they can’t afford.
Deborah Lucas, a professor at M.I.T. whose work on the financial crisis has highlighted the high cost of the bank bailouts, warned that these tactics are messy. “Congress set the conditions that the airlines had to satisfy when they enacted the bailout,” she said. “It seems unfair and impractical to try to change the rules now.”