To say things are bad for the airline industry right now is an understatement. Some are on the brink of bankruptcy and with no money bailouts from the government on the near horizon, the future’s looking bleak. Doug Parker, CEO of American Airlines, said in 2017, “I don’t think we’re ever going to lose money again. We have an industry that’s going to be profitable in good and bad times.” Boy, was he was wrong.
Just in the second quarter of 2020, the U.S. airlines lost $12 billion. It is expected that another $10 billion will be lost in the third quarter. Delta alone posted a loss of $5.4 billion this past Wednesday.
The Not-So Golden Era of Capitalism
Although these are gigantic sums of money, so what? Why should we care that a business is losing money and going under? Things happen. Businesses fail and others gain. This is one of the tenets of capitalism — the base economic system in the USA. Let the free market rule. After all, another business will take its place. Laissez-faire all the way, am I right?
The definition found on the Merriam-Webster dictionary on what capitalism is, is a bit long. Still, it essentially describes it as an “economic system” where private (or corporate) decisions are what run the economy based on a “free market.” A free market is not run by the government, rather it's run through supply and demand. This is very different than communist countries like Cuba or China, where the government has a heavy hand on how the market runs.
Our economy based on capitalism isn’t 100 percent capitalistic. This has been good at times, like when President George W. Bush bailed out the banks in 2008.
Though during that time, it hadn’t been a natural disaster that struck the United States economy. Instead, bankers' and investors’ greed on Wall Street led us into the Great Recession of ’08.
Distress in the Air
The kind of pandemic we are in has shaken the entire world. Governments all over the world have had to step in and help out their citizens. Our government was no different, at least in the beginning.
In the spring of 2020, Congress gave the airlines an emergency form of relief at the tune of our taxpayers’ dollars of $25 billion to keep paying the airline workers until the end of September and another $25 billion loan with no strings attached to stop layoffs from happening.
We are now in the middle of October, and no amount of art could close the deal for a second relief package for anyone. American Airlines and United Airlines cut 22,000 jobs with the threat that more jobs would be slashed.
With daily cash burns of around $18 million by companies like Delta at the end of September and no end to the pandemic in sight, it’s hard to see how they will make it out of this one on their own. Delta’s president expects it to be a year or two before they get back to some “normalized revenue environment.”
Other companies were expecting average losses of $30 to $50 million a day through June.
Descent of an Industry
It is fair to say airlines were not prepared. No one was prepared for what COVID-19 would do to our economy. When the pandemic hit, most of the airlines were considered economically healthy. They weren’t in the red and were making their investors richer yet.
In the past decade alone, all the major airlines combined had used 96 percent of the free cash flow to buy back their stocks and raised the value of their stock investments with it. January of 2020, Southwest Airlines had just celebrated its 47th year of consecutive profitability.
But after the economy shut down due to the virus, the average amount of cash the airlines had on hand was eight months. This was six months ago. With the passage of the first and only CARES Act passed by Congress, they should theoretically be able to survive a little longer. We are about to enter that “longer” stretch.
The American Individualism Myth
Americans believe that if you try hard enough, you can succeed and overcome all and any obstacles. Through the sheer will of determination and hard work, you can achieve your goals; this is a myth. There are structures in place so that it is incredibly challenging to move past certain barriers. For example, if you are born to a low-income family, statistically speaking, you will stay within that economic class for most, if not all, your life regardless of how hard you work.
When regular individuals, like you or me, decide to spend all our money on things like an expensive car or take out a loan to attend a costly university and fail to have a substantial amount of money set aside for emergencies, like a global pandemic, we are called irresponsible. We are told we should have known better.
We can’t even get the government to bail us out and are constantly told to pull ourselves up from our bootstraps.
If Americans that need a little extra help get money, it’s called welfare. It’s looked upon as a bad thing because there is the assumption that these people asked for it themselves.
Private companies, like the airlines, should have known better than to spend all their money making their investors rich, yet that’s exactly what capitalism is about. So why should we bail out big corporations that have for decades made their profits, and when things get rough, they need us, taxpayers, to bail them out?
Things Have to Change
Unfortunately, we depend on their infrastructure, services and economic stimulus.
We have to bail out the aviation industry because we don’t have a choice. This is one of the main reasons I’m against private entities running public-vested interests and infrastructures. If they fail, for whatever reason, it’s up to us, the taxpayers, to pay their way out...every single time.
I’m starting to think perhaps we need to add a “taxpayer tax” on all profits of the industries we help survive. While sectors like aviation may provide critical services, it is not for free. They make plenty of money off of us; perhaps it’s time, when things are good, they start paying back their fair share to those that saved them.
This pandemic has exposed so many weaknesses in our economic system and how our government is running. Things have to change. If we keep looking out for only the big businesses who are not allowed to fail, who is looking out for us, the little guys?