America's bailed-out airlines are not 'playing fair' with customers

https://finance.yahoo.com/news/americas-bailedout-airlines-are-not-playing-fair-with-customers-travel-expert-says-114038635.html

by Alupis • 6 years ago

136 164 6 years ago

finance.yahoo.com

jdsully5• 6 years ago

If you were flying to europe they should be reimbursing per EU261. So far its been hit or miss actually getting the refunds with the people I’ve helped.

Its amazing how when the contract of carriage is in the customer’s favor somehow it no longer applies.

cbanek• 6 years ago

Despite not having any information on American Airline's website, I was able to get my money for a cancelled flight last year from Europe to the US (due to technical problems on the plane) by just doing the contact us form and putting in all the info. But of course, they didn't have any of this info listed on their website in a way that told me I needed to do that. The check was mailed on time, and I was actually pretty surprised.

Definitely try to get your money under the EU regulations! It's worth the time.

jdsully5• 6 years ago

In normal times you should also get 600EUR in additional compensation although they fight hard against that. Obviously this doesn’t apply here.

llampx• 6 years ago

Serious question: does anyone actually expect the government (at least the current administration, of the US) to do what's right for the little guy?

macintux3• 6 years ago

As much as I'd love to pile on to this question, HN isn't a place for general political arguments, and this isn't a productive discussion for this site.

dvtrn• 6 years ago

“HN isn't a place for general political arguments”

I wish we’d stop lying to ourselves about this.

lonelappde2• 6 years ago

Lucky for you, this crisis is going to last until the next administration (which might be the same as this one, depending on election results).

So far we've got $1200 checks going to all the little guys and $500 to their little children.

SomeHacker44• 6 years ago

Which hardly seems like much. Maybe if you are unemployed, but if you are earning $75,000 a year how exactly does this help? There is not much to spend it on now anyway.

orthecreedence4• 6 years ago

If we give bail outs, we should get stock/control. End of story. All bailed out companies should be nationalized to some extent, depending on the value of their stock and how much the government buys.

A board/council of nationally elected representatives should manage whatever share of these companies the government owns.

It's time the citizens started getting a return on their tax dollars if they're being used for private investment.

JumpCrisscross2• 6 years ago

A board/council of nationally elected representatives should manage whatever share of these companies the government owns

This has succeeded practically zero times in the history of nationalisation. Transitioning a culture from private ownership to public is highly value destroying. And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.

The better strategy is to have a board appointed by elected representatives with a finite term and mandate to return the assets to private ownership.

orthecreedence4• 6 years ago

Transitioning a culture from private ownership to public is highly value destroying

You know what else is value-destroying? Giving money to failed companies for free. Everyone's a capitalist until something bad happens, then they go running to Free Money Center to pick up their welfare check.

And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.

Yes, failing companies are a paragon of competence.

threatofrain• 6 years ago

These companies were shut down under extraordinary circumstances, and the economy also shut down in a very uneven way and for an indefinite time, with another potential shutdown to counter a winter resurgence. About half of Americans are still not under lockdown.

The picture to me is that the country does not consider itself as in the same boat.

jacobolus• 6 years ago

These companies have made incredible profits for many years by nickel-and-diming customers, squeezing employees, and ignoring large-scale environmental costs, and then diverted the proceeds into the pockets of a small number of extremely wealthy people instead of using it to prepare for possible shocks.

If the people are going to bail them out, the people should get an ownership stake.

dominotw2• 6 years ago

All bailed out companies should be nationalized to some extent

Is there an example of nationalized company that operates in free market and still manages to turn a profit for the investors(citizens).

I wouldn't make an investment in usps or amtrak as a citizen with profit motive as a tax payer.

lonelappde2• 6 years ago

Nationalised companies like USPS and local utilities turn a profit for the customers and externalities to promote the general welfare, as it should be.

sadfklsjlkjwt• 6 years ago

Equinor (formerly Statoil) does fairly well for Norway.

dboreham• 6 years ago

Yes but not many because Chicago School Economics says you immediately privatize them in that case.

dasil003• 6 years ago

This line of thinking is the worst sort of ideological nonsense: the tax payers are bailing out a failed company with their own money, but because that bailout is administered by the government, which is, a priori, hopelessly inefficient, we dare not ask for anything in return lest the government really screw things up?

In case you didn't notice, these companies are already failed, and we're bailing them out. You're not "investing in them with a profit motive", you are forcibly having your tax dollars transferred to them. It's ridiculous that we would do so without any upside on the recovery. This is corporate welfare plain and simple. The really shocking thing is how our corporate oligarchs in American have turned "nationalize" into such a dirty word that regular people reflexively dismiss it as if it were Stalinist communism.

T-hawk• 6 years ago

Serious question: do we have historical comparisons, can we refer to instances where nationalizing in the wake of a bailout led to positive results?

The one comparable I can think of in the US is Amtrak, which is functional although not exactly wildly successful.

orthecreedence4• 6 years ago

This is why I suggest operating the companies via a democratically-elected board. If the management sucks, vote them out.

tehwebguy• 6 years ago

This is a bad faith question.

The real question is, “Why were the airlines so poorly equipped to handle a cataclysmic event when the last one was only 19 years ago?”

The answer is short term profitability.

And the follow up question is, “Why would ANYONE bail any for-profit company out to the benefit of the shareholders only, ever?”

HumblyTossed• 6 years ago

If we let the airlines go under, I wonder how much funding so called bullet trains and Hyperloop, etc would get in the USofA. We depend on Airlines way too much.

Edit: Maybe not "go under", but at least try and bail themselves out. We need to fund alternatives.

pmorici• 6 years ago

Didn’t the US Government get stock in GM when they bailed it out in 2008? They ended up breaking even as the claim goes

gambiting• 6 years ago

UK government bailed out Rolls-Royce by nationalising it, turned it into a successful company, and then privatised it again 18 years later(there's a common argument made that perhaps it was nationalised for too long, but the effect was certainly positive).

greglindahl2• 6 years ago

GM and AIG are two examples from the last financial crisis. Both went back into private hands.

bcrosby95• 6 years ago

Doesn't Norway own the majority of their oil company?

dionian• 6 years ago

Bailouts for government-mandated shutdowns in crises are different than saving the banks for screwing up while trying to make more money.

mvid• 6 years ago

People were flying less and cancelling flights far before the govt mandated lockdowns

the84723• 6 years ago

Cheap air travel facilitated the global spread of the virus, they're not exactly innocent bystanders.

rdiddly2• 6 years ago

Any private investor would demand the same.

clairity2• 6 years ago

a short-term oversight is warranted to get a company reorganized (happens in bankruptcies, for example), but long-term oversight can be detrimental to the best interests of citizens by keeping companies overly constrained from feeling and responding to market conditions.

and as others have noted, the return to citizens of such companies goes beyond its profits, so it's wise not to get to focused just on distributing those profits.

beyond that, let's make sure the shareholders and executives feel the pain of their decisions, so they can adjust for risk in the future. let shareholders take a serious haircut (you can cram them down by creating a large pool of new, unallocated stock) and for execs, take back all incentives beyond a reasonable salary for the past 5 years. you can take that reclaimed incentive and form forward-going incentives the execs can work for again.

SubiculumCode• 6 years ago

At the very least, demand planes give passengers 1-2 more inches to every seat.

uncletammy2• 6 years ago

I wholeheartedly agree with this sentiment but I don't trust "elected representatives" to fairly represent my interests.

I want voting shares issued directly to me in an amount equal to my financial contribution (tax dollars / currency devaluation) towards their bailout.

gumby2• 6 years ago

In practice this is both hard to do (denominator issue) and leaves control in the hands of a small number.

The latter problem is also the argument against index funds (which I’m in favor if, but I appreciate the argument)

tomp2• 6 years ago

I don't trust "elected representatives"
want voting shares issued directly to me

Um... what are you going to do with your voting shares if not vote for elected representatives (the board, the CEO) that you'll have to trust to represent your interests?!

golergka3• 6 years ago

It's time the citizens started getting a return on their tax dollars if they're being used for private investment.

US citizens have already seen massive return on their 2008 bailout. These bailouts aren't free money, they're just loans that get paid back, with interest.

MetalGuru• 6 years ago

While I think the widespread negative reaction to bailouts is generally uninformed, the interest rates on bank bailouts was ridiculously low. And from what I understand, banks spent it in self-serving ways like stock buybacks and fat executive bonuses. I mean, why wouldn’t they. Without oversight, their priority is to shareholders.

wdr1• 6 years ago

Why not just make it a loan?

caseyf7• 6 years ago

Yes, the bailout should've required all flights scheduled during shelter-in-place to be refunded. Millions of consumer dollars tied up in airline credits is a net drag on economic stimulus.

Reedx2• 6 years ago

The government is failing badly at every level. That's more clear now than ever. Serious question: Why would you want to give them more to fail at?

pgsbathhouse2• 6 years ago

The government is failing badly at every level.

Just the executive branch, which was elected by a certain segment of our society.

Thankfully (hopefully) it only lasts 4 years, and not 20.

evv• 6 years ago

Just the executive branch? You should look into the corporate manipulation of the legislative branch- buying elections with PACs, gerrymandering, voter suppression, the filibuster, extreme partisanship on every topic except the protection of wealthy donors...

Reedx2• 6 years ago

There's no assurance at this point it'll be improved the next 4 years, and who knows what's after that. It could be even worse for all we know. So it's not wise to increase what they might be in charge of.

Anyway, let's be real, it goes into the state and city levels too. NYC health leaders encouraged people to go to parades in Feb, in defiance of Coronavirus. Their mayor was encouraging people to go to bars and theaters into March. March!

Example from March 2nd: "Since I’m encouraging New Yorkers to go on with your lives + get out on the town despite Coronavirus, I thought I would offer some suggestions."

https://twitter.com/BilldeBlasio/status/1234648718714036229

Do they not bear any responsibility for that? And for not generally ensuring their health system could handle a surge? We knew of this specific problem back in January. We knew pandemics would be a problem generally. It's not exactly a surprise.

iso12102• 6 years ago

Privatize the profits, Socialize the losses, that's the American Dream.

hkmurakami• 6 years ago

They often result in solid financial returns for the government holder of equity.

phkahler• 6 years ago

The parent post was talking about the current practice of bailouts.

sfkdjf9j3j• 6 years ago

Is that actually true? TARP cost $426 billion in 2008 and when the assets were finally sold off in 2014, they summed $442 billion. So that's a 3.7% return during a time when the s&p 500 more than doubled in value.

Do you have some examples where the government made these returns?

gumby2• 6 years ago

Citation needed. AFAIK they sometimes result in a profit (as with GM in 2008) which unsurprisingly gets attention. But the long history of postwar nationalization’s in Europe and the US are not promising by this metric.

There are other reasons, some good, for doing so. Amtrak, for example, might better have been formed as a nationally operated part of the transit network rather than as a quasi-private-sector corporation that is neither fish nor fowl and suffers for it. Municipal utilities often work quite well at least here in Northern California, though at the national level I only know of the TVA and the western dam systems.

tehjoker• 6 years ago

Awesome, every poor person I know owns tons of those.

xkvd• 6 years ago

What do you mean by "privatize the profits" here? Are you ignoring taxation?

One way to view the government's role here is that it shifts around externalities to achieve efficiency. You can put cap-and-trade restrictions to absorb negative externalize in high-pollution industries and redistribute that to consumer/producer markets that suffer from the pollution.

You can probably apply a similar piece of reasoning across time. Government can tax industries during booms and then redistribute that during busts.

crankylinuxuser• 6 years ago

What do you mean by "privatize the profits" here? Are you ignoring taxation?

Are you (excuse my french) fucking kidding me?

Source: https://itep.org/notadime/ (dollars in millions)

     Company (U.S.)   ~ Income ~ Federal Tax ~ Effective Tax Rate
     Alaska Air Group ~ $576   ~ $-5         ~ -1%
     Delta Air Lines  ~ $5,073 ~ $-187       ~ -4%
     JetBlue Airways  ~ $219   ~ $-60        ~ -27%

And from this source: https://itep.org/covid-19-is-no-excuse-for-airline-industry-...

The most taxes paid was by Southwest, at 21.4% ... Which is a 60% of my personal tax! When can I get personal tax rates like that???

nopriorarrests• 6 years ago

What do you mean by "privatize the profits" here?

CEO's we getting their fat bonuses (tied to share prices) for years, inflating said prices with buybacks, and now, when shit hit the fan, they are dumping half-bankrupt companies to the public?

xnyan• 6 years ago

Airlines are a grey government agency. If they had to pay the true cost of things like air traffic control, FAA administration and safety regulation, or health costs due to pollution, to say nothing of the non-the-first-time-fat cash payment they just got on top of the huge fact that they are paying little to negative tax rates (all effectively government subsidies of their operations) then not a single airline would be in operation today. The industry exists at the price it exists only with heavy support from the government.

wpietri2• 6 years ago

What you say is reasonable in theory, but grossly ignores the actual history. E.g., the 2017 tax cut was an enormous giveway to corporations and the rich: https://qz.com/1769421/trumps-tax-cuts-and-jobs-act-shows-po...

And a lot of that money is being borrowed, so it's even worse than it seems at first blush. Not only are the rich getting richer, but we'll all have to pay for it eventually. So recent history is the government doing the opposite: they were giving away money during the boom, making it harder to do countercyclical interventions in a crisis. And this from the supposedly fiscal conservative party.

dang5• 6 years ago

Maybe so, but please don't post unsubstantive comments (like mechanical tropes) to HN. They lead to predictable and therefore tedious and therefore off-topic, generic discussion.

We detached this subthread from https://news.ycombinator.com/item?id=22712653.

Merrill• 6 years ago

The airline industry needs to be resized as well as bailed out.

Business travel will be permanently impacted by the shift to digital communications that is being forced upon business now.

Leisure travel will not come back until there is a Covid-19 vaccine, which is 12 to 18 months at least. Even then, higher ticket prices due to the lack of the more profitable business travelers, combined with a lack of consumer expendable income, will curtail demand for another year or two.

jliptzin• 6 years ago

The pandemic is not their fault, but it is their fault for not being prepared for something like it. It’s even listed as a risk factor in investor disclosures, so it’s not totally unforeseen. An electrical fire can burn your house down through no fault of your own, and that’s why you have homeowner’s insurance. How about keeping cash in reserves instead of doing huge stock buybacks the last 10 years? How about having a plan to wind things down and “hibernate” until the business can be spun back up again? No sympathy for them. No bailout. Let them fold, let them sell the planes so new management can manage them better.

wpasc• 6 years ago

Keeping large cash on hand for highly rare black swan events is a pretty inefficient allocation of capital. If all companies kept enough cash to not earn revenue for months and pay all expenses for a once in a hundred year event, then a significant portion of money in all the U.S. economy would just sit as cash and not be allocated to investment, hiring, etc. Just a counter argument.

skannamalai• 6 years ago

This is true in theory. But in practice that revenue/profit often is allocated inefficiently anyway in the form of excessive exec compensation and stock buyback programs when valuations are high. Such as when your stock is trading at a high multiple. So the company is trading cash (which has a book value) for stock (which also has a book value but is probably overvalued) which juices the stock price in the short term. But stock assets vs cash are far more volatile to shock and thus provides less operating flexibility for big companies.

Imagine if you had that substantial cash reserve. This would be an opportune time to buy back shares on the open market after taking care of operating expenses.

One reason cash reserves don't often exist is "activist" investors and private equity who calculate (book value - market cap) as their potential upside from buying undervalued shares and stripping the cash assets before dumping the remains.

Anyway it's an complicated mix. I'd like there to be more emphasis on sustainable valuation growth from some adminstration and the SEC, but I don't know enough to suggest solutions to improve governance.

6gvONxR4sf7o• 6 years ago

Maybe there could be some form of insurance.

dlp2112• 6 years ago

Holding cash does not mean that it isn't allocated to investment. The airlines wouldn't be putting it under their mattress. They would be depositing it with a financial institution that would then be able to use the increased reserves to provide more capital to various actors, ie: investment.

kqvamxurcagg• 6 years ago

The airlines have given billions back to their shareholders over the last ten years. They should now be approaching their existing shareholders for cash (rights issue) rather than approaching the government. The current share price of these companies is only being held up due to the expectation of free money from the government.

As others have said, they are privatising the profits but socialising the losses.

dopamean• 6 years ago

Except some of them spent that money not on investments or hiring but on stock buy backs. So maybe that was a bad use of capital?

viklove2• 6 years ago

Yes, that is why we share the risk with this handy concept called insurance.

the84723• 6 years ago

I don't think it's correct to label this a black swam event. Pandemics are known to occur repeatedly, we had lesser ones in the 20 years and major international organizations were planning for them. The whole world were looking at china and with a seeing did nothing, including the airlines. Well, not everyone, just most. Some countries did shut down travel to and from china immediately and instated screening.

Had airlines shown the same foresight as those countries they could have shut down service to china as a "supportive measure" for the containment and enjoyed continuing profits in the rest of the world. They didn't.

Perhaps this is a matter of biases and misaligned incentives. In europe airlines were even flying empty just to retain their airport slots. But biases and incentives just mean you're very much aware of the black swans in front of you, you're just ignoring them willfully.

Relabeling these things as black swan events does a disfavor to everyone because they can just throw up their arms and say it was higher force instead of reflecting on the deeper structural issues instead of just working on specifically pandemic-related ones.

bantunes• 6 years ago

a pretty inefficient allocation of capital

Why? If it would help with scenarios like this, what's the argument for it being "inefficient"? Should we only think of the happy path on our books?

The reality is that these costs are offset to the customer, in the name of increased profits. I wonder how different pricing would be for airlines (and other businesses) if they didn't rely on revenue to bail them out of market fluctuations like this, and smaller ones they're sure to experience during the year.

The economy lately is like a Formula 1 engine that is designed for acceleration and short 15,000 RPM bursts of insane speed but only lasts for a few months of use.

godzillabrennus• 6 years ago

We (the Tax payers) did earn billions bailing out the banks.

https://money.usnews.com/investing/articles/2017-01-19/finan...

We should still have seen banksters going to jail over their clearly crooked and irresponsible behavior.

viklove2• 6 years ago

That article does not conclusively show the taxpayer benefited from the bailout. All it shows is that the stock price went up. If the money is then used to subsidize airlines, telecom companies, etc. and ultimately used for stock buybacks, exec bonuses, etc. then the taxpayer is never seeing any of that money.

tyingq• 6 years ago

Hard problem. They are working with < 12 percent load factors when 60% s break even is reality. I expect a lot of adjustments this week.

aczerepinski• 6 years ago

I don't understand why we can't let them go bankrupt. Presumably at least a couple of the airlines could raise money by selling more stock or getting acquired by somebody like Berkshire. The rest would go through chapter 11 and come out of it being owned by somebody else. We could use the 2 trillion to support the employees.

What am I missing?

ahelwer• 6 years ago

What you're missing is that both political parties in the states are beholden to capital interests, and so the reason "we" can't let them go bankrupt is it would work against those interests. This isn't a conspiracy theory, there don't even need to be conspirators for it to work this way. With very few exceptions you are only capable of getting elected if you believe in the supremacy of the needs of capital. The only thing that can really stand against this is a strong organized worker's movement, which has been systematically dismantled over the past 70 years.

America's bailed-out airlines are not 'playing fair' with customers

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