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The health threat posed by the COVID-19 pandemic has triggered a crisis touching every person and business on the planet. No one entity or being is necessarily more deserving than another at such a time of historic suffering.
A national emergency has been declared and the U.S. economy is being stress-tested in ways we’ve never seen before. And while many sectors are incurring setbacks of varying degrees, the airline industry is being uniquely decimated by the abrupt curtailment of travel demand.
As a company that was created to lift the values of commercial aviation, Kambr Inc. believes the past week’s condemnation of carriers and attempts to address every issue big and small regarding past financial strategies, labor practices, aircraft configuration, and passenger services is both unfair and destructive to this vital economic engine.
There is a time for rescue and there is a time for reform. Both are topics that need to be discussed. But unless the airline industry isn’t given a clear path to survival by the federal government, the second discussion will be rendered moot, as there won’t be much of a business left to reform.
The Damage of Delay
The delay in economic aid is already forcing difficult decisions by airline executives, who have warned without a capital lifeline, thousands of employees may have to be furloughed as current routes have come to a near-total halt and cancellations have risen to heights not seen since the tragedy of 9-11. Further holdout in a rescue package for the industry will ultimately threaten the hundreds of thousands of people who earn their livelihood from commercial aviation.
Indeed, net bookings have gone negative in recent days and show no sign of rebound in the foreseeable future. The prospect of widespread airline dissolutions is very real if carriers don’t find a way to adjust for these harsh new realities.
As of this writing, Congress appears to be coming together on a total stimulus package to confront the massive layoffs that millions of Americans are facing as a result of attempts to contain the spread of the COVID-19 virus by restricting all movement and travel.
In a letter to Congress signed by 10 airline executives released by industry trade group A4A, leaders have accepted the ending of the recently maligned stock buyback programs that four legacy carriers have taken advantage of over the past decade in exchange for $29 billion in loans and loan guarantees. In addition, the letter promises to limit executives’ compensation in order to help passage of the total $58 billion aid package, which includes a mix of grants as well as loans. Lastly, airlines say they will eliminate stock dividends over the life of federal loans.
Solving Pain Points – At the Right Time
The calls for “reform before aid,” which refers to the demands that airlines’ unilaterally agree to a long list of financial, labor, and passenger service fixes comes with an underlying implication: that passenger complaints and financial inequities are proof that airlines might not deserve our sympathies, let alone be worth saving. But any disagreement with how bag fees, ticket changes, and seating options are set have no place in a discussion of an industry’s viability or dissolution.
History’s Lessons
It’s important to mention that there was no government "airline bailout" after 9/11. That original bill actually sought $10 billion authorization of loan guarantees. In the end, of that $10 billion, only $1.7 billion was approved, and many loan applications were denied. As a result, most carriers simply tapped private markets rather than accept the red-tape and conditions. In the end, the U.S. government made money on the airlines loans, as the WSJ’s Scott McCartney reported.
Back to today’s mindset: the current disputes ignore the fact that saving this industry is really about preserving more than half-a-million jobs, according to the U.S. Labor Department and sustaining its far-reaching economic and societal impacts. Those 40,000 aircraft mechanics, along with nearly 70,000 ticket agents, and 75,000 pilots and engineers support communities across the country.
Airlines Must Be Ready to Fly
Airlines comprise a fundamental lifeblood for the world’s economy. No surprise there; they provide a highly valuable form of mobility for people, goods and services. Today many analysts are rightfully worried about maintaining the robustness of the supply chains needed to ensure availability of medicines, food, and other key supplies. Every day, individuals and companies rely on the critical resources and capabilities that are transported by airlines.
To put it simply, air travel provides economic value which goes well beyond the transactions that flow between here… and how to get there. This goes beyond passengers and airlines and beyond cargo shippers and carriers.
The benefits our society experiences in spillover effects to air travel are what economists call “positive externalities.” These positives continue to materialize and are trending the right direction; for example, airlines have begun to accept responsibility for issues such as CO2 emissions, and they are acting on plans to leapfrog their reductions in carbon in order to meet the needs of passenger, economic, and societal interests.
We are well-served by recognizing these positive externalities and keeping airlines and the many business that they support — from shipping to hospitality and tourism—from collapsing. I speak for the world’s businesses, wanderlusts, and economists when I say I cannot imagine a scenario where global governments would let the failure of the airline industry occur unabated, while then calling for market forces to precipitate an eventual rebirth. Undoubtedly, with enough time and capital formation, new carriers would rise up, but it would take years. Even the most strenuous critics are not arguing for a do-nothing approach, which would most certainly prolong the general economic collapse feared by many.
The opportunities carriers have to serve demand, when the market returns, will not be solved simply by generous government assistance. Many problems must be subject to corrections, which will be dictated by the recovering of a battered world economy. The values that the next wave of travelers bring with them to the issues of airline practices will be acutely felt by the commercial aviation leaders at the top.
Meeting the urgency faced by the airline industry is critical to the day-to-day functioning of modern life; it is paramount that we resolve its need and improve business practices in the process. But all the condemnations of the aviation industry will be rendered moot if there if industry itself ceases to exist – we respectfully ask Congress, critics, and the traveling public to quickly support the rescue carriers and their employees so desperately require.
About Our Guest Author, Steve Hendrickson
Steve Hendrickson is a Minneapolis based management consultant to the commercial airline industry. He currently serves as Director of Advisory Services for Kambr, Inc., a firm devoted to economic strategies in air transportation. Over the past three decades, Steve has advised numerous carriers during normal times as well as disruptive periods like 9/11, SARS, and others.
