A Second Round of Airline Bailouts Would be Bad for the Industry and Consumers

Passenger airlines are demanding another $25 billion in taxpayer support to prevent mass layoffs.

Not content with one round of sector-specific bailouts, the country's passenger airlines are lobbying Congress and the White House hard in hopes of receiving yet another infusion of taxpayers' money.

On Thursday, The Wall Street Journal reports, the top executives of American Airlines, Southwest, and United all met with White House Chief of Staff Mark Meadows to ask for cash assistance, which they say would forestall a looming round of October layoffs.

Meadows appeared amenable to providing an additional $25 billion to the industry, which he deemed a small sum compared to the broader pandemic relief proposal that Congress is currently considering.

"I never thought I'd say $25 billion was a small number, but compared to $1.5 trillion, it's a rather small amount of additional assistance that could potentially keep 30,000 to 50,000 workers on the payroll," Meadows told reporters after the meeting. Meadows is the former chair of the House Freedom Caucus, which presents itself as a force for fiscal conservatism.

That sum would likely come as a clean extension of the $32 billion Payroll Support Program, which was originally passed in March as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. That program, administered by the Treasury, made $25 billion in grants available to passenger carriers on the condition that they not involuntarily furlough their workers or cut wages through the end of September. They're also obliged to run a minimum number of flights to areas they serviced prior to the pandemic.

Airlines—who saw travel volumes decline by as much as 95 percent at the beginning of the pandemic—have eagerly accepted those grants. United, American, and Delta all inked grant agreements worth around $5 billion each. Southwest accepted $3.2 billion in taxpayer-funded grants. Companies will have to pay some of this grant money back, either as cash or as stock.

The CARES Act also created a $25 billion line of credit for the industry. So far, no airline has touched that pot of money, despite an announcement in July that several major carriers would. Southwest has cited its success at raising private capital as a reason for walking away from CARES Act loans.

The airlines and their unions are warning that without another round of grants, carriers could be forced to lay off up to 75,000 employees after benefits expire October 1.

The Congressional Research Service has pointed out that because the airlines' grant agreements were signed in May, June, July, and even later, many of these recipients will likely still have grant money left over to pay workers in October.

Nevertheless, the potential for sudden, mass layoffs of airline workers in an election year has attracted bipartisan concern from members of Congress.

In August, 16 Republican senators wrote a letter to Senate Majority Leader Mitch McConnell (R–Ky.) urging him to support a second airline bailout. In late July, a majority of U.S. House members, including 195 Democrats and 28 Republicans, likewise signed a letter endorsing a six-month extension of the Payroll Support Program. "Without an extension of the (payroll support program) before then, hundreds of thousands of airline workers will be fired or furloughed on October 1," they wrote.

But job losses in an industry that has seen a massive drop in demand for its services isn't the worst thing in the world, argues Marc Scribner, a transportation researcher with the Reason Foundation (which publishes this website).

"The outlook isn't great for the airlines," says Scribner. The number of people flying is down around 70 percent compared to this time last year, and the industry itself doesn't expect passenger volumes to return to 2019 levels until 2024.

"Another round of bailouts would just be an expensive way of delaying" an inevitable shedding of jobs, he tells Reason, warning that trying to prevent the shrunken sector from downsizing risks creating a "zombie airline industry."

As Veronique de Rugy argued in a recent column for Reason, bailouts tend to set the stage for still more bailouts by propping up lots of unprofitable businesses.

Refusing a second round of bailouts would lead to job losses and possibly even bankruptcy for some carriers, but it would also encourage the restructuring necessary for an airline to return to profitability in a world of much-diminished demand for air travel. After all, if you only have 30 percent of the passengers you once had, you probably don't need to keep paying 100 percent of your flight attendants and baggage handlers.

Whether or not a second airline bailout will end up being included in the fourth relief package remains to be seen.

Neither the $1 trillion relief measure floated by McConnell in July, nor the $500 billion "skinny stimulus" proposed by Republicans this month included money for the airlines. The Democrats' May-passed $3 trillion relief proposal would have barred airlines from furloughing workers until government assistance ran out, but didn't give them any more money.

A $1.5 trillion relief package proposed by the bipartisan House Problem Solvers Caucus managed to budget $12 billion for broadband in underserved communities but included no more money for the airlines either.

None of that bodes well for a second bailout. But given that Senate Republicans, House Democrats, and the White House have all endorsed additional support for carriers, there's a real chance they'll end up being included in whatever eventually passes.

The best way to help both airlines and consumers, says Scribner, is to tackle the public health crisis that's scaring people away from flying in the first place.

"The danger of going forward with another round of airline bailouts is that we are going to be locking in the pre-pandemic industry structure when we could stand to see some disruption and competition," he says.