America's bailed-out airlines are not 'playing fair' with customers • Hacker News Board

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

#81

Post by adventured » Sat, Mar 28, 2020, 6:38 PM UTC

mrfusion wrote: post #71

foldr wrote: post #65

Earlier quoted context omitted.

>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…

Pandemic insurance? Lack of customers insurance? Do they sell that?

No, there was no insurance you can buy for this scenario that will cover $30, $50, $100 billion in accumulated losses if you're eg Delta Airlines.

There are no insurance companies that can afford that or that would back it, including Berkshire Hathaway (and they're among the only ones that could even attempt it).

If you tried it, you'd just take down the entire insurance industry again as they suddenly might have to eat $100 billion in losses across the segment in one year, paying out epic cash that nobody outside of Apple, Microsoft and Google have to pay out.

This is exactly the scenario where you should socialize losses across the giant government with the Fed's printing press and balance sheet, and simultaneously also ensure the government and its taxpayers get a fair deal (the airlines have to pay it back, and or taxpayers get the equity which can be sold off and receive dividends over time; all the US airlines were worth maybe $90 billion prior to the crash, producing like $18b in operating profit per year).

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

#82

Post by mrgordon » Sat, Mar 28, 2020, 6:39 PM UTC

nickff wrote: post #63

jacobolus wrote: post #48

Earlier quoted context omitted.

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...

While I generally agree and would avoid airline investments personally, the airlines did just spend their profits for years on dividends and stock buybacks. If you don’t save for a rainy day, then it’s not too surprising you run out during bad times...

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

#83

Post by wpasc » Sat, Mar 28, 2020, 6:40 PM UTC

jliptzin wrote: post #50

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…

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.

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

#84

Post by jdsully » Sat, Mar 28, 2020, 6:42 PM UTC

phkahler wrote: post #39

hkmurakami wrote: post #35

Earlier quoted context omitted.

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

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

The government took equity stakes during the 2008 bailouts, it was widely regarded as a successful program among economists. The government got repaid and jobs were saved.

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

#85

Post by sfkdjf9j3j » Sat, Mar 28, 2020, 6:43 PM UTC

hkmurakami wrote: post #35

iso1210 wrote: post #31

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

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

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?

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

#86

Post by jdsully » Sat, Mar 28, 2020, 6:44 PM UTC

mrgordon wrote: post #82

nickff wrote: post #63

Earlier quoted context omitted.

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...

While I generally agree and would avoid airline investments personally, the airlines did just spend their profits for years on dividends and stock buybacks. If you don’t save for a rainy day, then it’s not too surprising you run out during bad times...

Dividends and buybacks don't change net profit, so it has no effect on the analysis that the industry as a whole is not very profitable over long time periods.

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

#87

Post by [deleted] » Sat, Mar 28, 2020, 6:45 PM UTC

mrgordon wrote: post #82

nickff wrote: post #63

Earlier quoted context omitted.

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...

While I generally agree and would avoid airline investments personally, the airlines did just spend their profits for years on dividends and stock buybacks. If you don’t save for a rainy day, then it’s not too surprising you run out during bad times...

[deleted]

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

#88

Post by clairity » Sat, Mar 28, 2020, 6:45 PM UTC

orthecreedence wrote: post #4

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 p…

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.

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

#89

Post by Klinky » Sat, Mar 28, 2020, 6:45 PM UTC

nickff wrote: post #70

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?”

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, t…

Wait, this is the industry that produced the 737 MAX, which skirted regulations and design flaws to avoid costly retrofits, redesigns and training, in order to maximize profits for shareholders.

This is the industry actively sending out planes for repair and refurb to sketchy offshore repair centers, in order to maximize profits for shareholders.

This is the industry that lobbies against more strict pilot fatigue rules, in order to maximize profits for shareholders.

This is the industry that spent the last decade investing heavily in stock buybacks instead of improving passenger experience, maintenance of their planes and employee well being, in order to maximize profits for their shareholders.

Seems maintaining shareholder profitability is its own safety issue.

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

#90

Post by mnm1 » Sat, Mar 28, 2020, 6:45 PM UTC

nickff wrote: post #64

mvid wrote: post #52

Earlier quoted context omitted.

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.

The airline companies are the major spreaders of c19. While unintentional, this is a fact as is their ability to have put in some safeguards to slow down prevention like forcing sick people to wear masks and gloves (and ideally to fly on separate planes when possible) and disinfecting their planes after each flight. In this case, they directly caused a huge part of this crisis, much more so than in 2008. Also, airlines that have done stock buybacks should never be bailed out. They knowingly put themselves into a poor situation that should bankrupt them. In all of these cases, the airlines themselves are culpable and don't deserve any bailouts.