This is what you get for $19 billion
The airline bailout kept U.S. carriers afloat — but what about passengers?
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It's time to ask the $19 billion question.
That's how much the U.S. airlines received in CARES Act bailout money. It was a generous helping hand from American taxpayers.
Now, airlines are pushing for more government aid. And we're inclined to give it to them. A survey released yesterday by the U.S. Travel Association says 87 percent of U.S. voters support another relief bill.
But before we head down that runway, maybe it's worth asking what passengers got from the last bailout.
What was the CARES Act?
The CARES Act offered a combination of grants and loans from April 1 to September 30. The law required that airlines:
Not conduct involuntary furloughs or reduce benefits or rates of pay.
Comply with minimum air service obligations.
Abide by restrictions on executive compensation.
Repay 29 percent of the funds (plus interest) to the U.S. Treasury.
Issue warrants to the U.S. Treasury.
For the nine largest passenger airlines, after deducting the amount repayable to the U.S. Treasury, the bailout covered 82 percent of payroll expenses, according to the airline industry trade group A4A. That's a lot better than most Americans fared during the crisis.
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What did you get?
With all the mayhem of the last few months, it's easy to overlook what we got for it:
A functioning airline industry with no major bankruptcies — yet.
Elimination of most change fees.
More flexible change policies.
Cleaner planes with some blocked middle seats.
Better customer service*.
*Some restrictions apply. Not valid on any airline that refers to itself as "ultra low cost."
Those things are not insignificant. But you could get all of that before the pandemic, more or less, if you booked a ticket on Southwest Airlines. (By the way, where is Southwest on that list of CARES Act recipients? I can't find it either.)
What air travelers wanted
Back in March, before the CARES Act passed, consumer advocates came up with a long list of things they wanted in exchange for a federal bailout.
Here are a few highlights:
Be responsible. Additional aid should be contingent on all air carriers maintaining cash reserves sufficient to keep operating without government intervention for up to six months in the event of a pandemic or other long-term crisis. In other words, no more bailouts after this.
End outrageous fees. If airlines want more government help, they should agree to stop charging ancillary fees – such as for baggage, seat reservations, and flight changes and cancellations – that are unreasonable or disproportional to the costs incurred by the air carrier for providing such services. (See the Fair Fees Act, which never got off the ground last year.)
Give us pandemic refunds. Finally, there was the Cash Refunds for Coronavirus Cancellations Act of 2020, introduced by five Democratic senators in May. The legislation would have required major airlines and third-party ticket sellers to offer full cash refunds for all canceled tickets during the coronavirus pandemic. Airlines currently offer refunds only if they cancel the flight. If you cancel, you only get a ticket credit.
Stop the squeeze. Consumer advocates wanted to stop airlines from further constraining seat width and pitch until such time as the Department of Transportation concludes its Congressionally mandated evaluation of emergency evacuation standards. That's particularly important at a time when passengers are trying to maintain social distance on a plane.
Create a sick passenger rule. Airlines should establish rules to allow sick passengers with a note from a doctor to change or cancel flights without additional fees or costs. After all, the CARES Act was supposed to stop the spread of the virus.
What should we do?
Does the airline industry know our wishlist? Of course.
And it could have at least thrown travelers a bone after receiving the first truckload of cash from the Trump administration. It would have been nice if one airline — just one! — committed to not separating families on flights or punishing travelers who were already sick. Or it could have agreed to a freeze on further seat reductions.
Instead, the industry asked for more money, threatening to cut flights and lay off more workers if taxpayers didn't comply.
Maybe we have it all wrong. Instead of bailing out the airline industry, maybe we should do what Canadian legislators did when Airbnb asked for help from the government. Canada raised taxes on vacation rentals instead.
I guess they remember what travel was like before 2020, when the industry was so busy printing money in the basement that it hardly had the time to care about us.
Do you think we got our money's worth when we bailed out the airline industry? What would you have wanted? Should we give the airlines more money now — and if so, what should we ask for in return? The comments are open. Please be kind to each other.
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Concerned about illness? By a fully refundable ticket or travel insurance. That's what those options are for! While I typically don't buy insurance and rarely buy a full fare, others do as a hedge against illness, weather, etc. Why should the airline absorb more responsibility when the traveler has multiple options to shield themselves against adversity?
We must, as a matter of policy, stop allowing industries to internalize profit and externalize risk. We can see the behavior current policy produces: when times are good, billions in profit to shareholders, when times are bad, ask the government for a handout.
The corrective: dilute shareholders. AA wants $5 Billion? No problem, AA must issue new stock to the US government so it owns 20% (25%? more?) of all outstanding AA shares. Existing shareholders take a haircut. Maybe they direct their anger at the CEO and board that got them into that mess. Either way, shareholders pay the price for feckless corporate behavior.
US govt also gets seats on the board, to be controlled by an agency SEPARATE FROM the FAA (which the Boeing 737 MAX debacle proved to be completely captured by the airline industry). Return of the old Civil Aeronautics Board? I'm fine with that.
And the airline has to repay 29% of the loan, fine; once that happens, they can also try to buy out the government shares. Once again, shareholders must pay the price.