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

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

#61

Post by clairity »

chki wrote: post #22
tehwebguy wrote: post #16

Earlier quoted context omitted.

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?”

How could an airline company possibly be equipped to handle this kind of situation? If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

by wiping out the existing shareholders and clawing back incentives to senior execs. you can do this through bankruptcy, an fdic-like asset reallocation (without consolidation into larger corps), or something else.

then the remaining market participants will figure out how to better account for such risks, which can no longer be considered rare (if they ever should have been).

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

#62

Post by thewebcount »

the8472 wrote: post #53
dionian wrote: post #49

Earlier quoted context omitted.

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

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

Small, dense living quarters facilitated it too!

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

#63

Post by nickff »

jacobolus wrote: post #48
threatofrain wrote: post #10

Earlier quoted context omitted.

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.

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.

The airline industry is famously unprofitable; they make a bit of money for a few years, then lose all that money, and repeat the cycle. From what I understand, it has been this way for at least 40 years.

https://www.mcgill.ca/iasl/files/iasl/ASPL614-Five-Reasons-A...

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

#64

Post by nickff »

mvid wrote: post #52
dionian wrote: post #49

Earlier quoted context omitted.

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

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

But it was exogenous to the airlines, unlike the financial crisis, which was caused by malinvestment (by the banks themselves,) among other things.

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

#65

Post by foldr »

chki wrote: post #22
tehwebguy wrote: post #16

Earlier quoted context omitted.

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?”

How could an airline company possibly be equipped to handle this kind of situation? If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

>You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

That's what insurance is for.

If an airline can't afford to buy adequate insurance, then it isn't actually a profitable businesses.

If market pressures make it impossible for airlines to run operations in a financially responsible way, then that may illustrate the fact that markets don't always create the best outcomes.

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

#66

Post by bilbo0s »

the8472 wrote: post #53
dionian wrote: post #49

Earlier quoted context omitted.

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

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

This is the point everyone is missing. These guys literally make their money facilitating the global spread of the virus. They want to externalize all of the negative impacts of their business model.

OK. Fine.

But now we get a cut. You don't just externalize all the costs for dealing with the virus off onto us and then also have us pay to ensure your profits don't take a dip to boot. That would be the most insane deal American taxpayers could ever make.

Of course we should get a fair cut of the airlines dependent on the size and structure of the bailout. Anyone saying otherwise has just not thought the whole thing through.

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

#67

Post by the8472 »

oh_sigh wrote: post #59
the8472 wrote: post #53

Earlier quoted context omitted.

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

Cheap car travel facilitated the global spread of the virus. They're not exactly innocent bystanders. Globalization facilitated the global spread of the virus, anyone with an international supply chain is not exactly innocent bystanders. Social activity facilitated the global spread of the virus. Meetup.com is not exactly an innocent bystander. etc...

Not sure what you're trying to say here. The point is that airlines were directly profiting by staying operational while the virus was already spreading. Had they been more proactive in curbing international travel then they would also have been able to resume business sooner.

Cars are not commercial entities that profit from spreading the virus. Rideshare and taxi services would be a different story, but even then they do so in a much more localized manner. Similarly if meetup didn't shut down its services soon enough the yes it did facilitate the spread for profit.

Economic globalization (movement of goods) on the other hand can work without moving people around as much.

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

#68

Post by mrfusion »

chki wrote: post #22
tehwebguy wrote: post #16

Earlier quoted context omitted.

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?”

How could an airline company possibly be equipped to handle this kind of situation? If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

Yeah everyone seems to ignore this fact.

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

#69

Post by JumpCrisscross »

orthecreedence wrote: post #20
JumpCrisscross wrote: post #9

Earlier quoted context omitted.

> 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…

> 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, faili…

> You know what else is value-destroying? Giving money to failed companies for free.

We agree on this. I think companies should be allowed to fail. If we can’t afford that, their shareholders (and managements’ parachutes) should be wiped out, and the public should get economic upside. Bailouts should be a painful last resort.

But the public should not get control. Particularly not open-ended control by a board of politicians.

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

#70

Post by nickff »

tehwebguy wrote: post #16
T-hawk wrote: post #12

Earlier quoted context omitted.

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.

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?”

Tyler Cowen made an interesting point on a recent Econtalk episode that no passenger wants the airlines' stockholders wiped out. If you wipe out the stockholders, it skews the incentives of the executives against safety, and in favor of profits. The reason is that the primary (financial) incentive to run safe airline is to maintain reputation/goodwill (which is a form of equity), and if you wipe out all the equity, they have nothing to lose.
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