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

#91

Post by mrgordon » Sat, Mar 28, 2020, 6:46 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 airlines also invested poorly this time around though. They spent all their money on dividends and buybacks instead of saving for a downtown. American Airlines, which was the worst balance sheet, famously declared they were doing so well that the airline industry wouldn’t hit a catastrophe again!

“American Airlines has been rather irresponsible with its capital allocation in recent years. As shown in the tables above, it spent the highest proportion of its operating cash flow (52%) on dividends and buybacks, despite also spending more on capex than any of its peers.”

“American paid for most of this capex by issuing debt and entering sale-leaseback transactions. Meanwhile, it returned a little more than half of its operating cash flow to shareholders over this period, mainly through buybacks.”

https://www.fool.com/investing/2020/03/25/american-airlines-...

This article tries to make the point that not all airlines were equally bad but let’s face it American was the first one to need a bailout and they definitely squandered their financial position.

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

#92

Post by xkvd » Sat, Mar 28, 2020, 6:47 PM UTC

iso1210 wrote: post #31

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

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.

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

#93

Post by zeckalpha » Sat, Mar 28, 2020, 6:49 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.

Airlines could have limited the spread.

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

#94

Post by ceejayoz » Sat, Mar 28, 2020, 6:50 PM UTC

Scoundreller wrote: post #58

ceejayoz wrote: post #51

Earlier quoted context omitted.

We made a profit overall in the program that included GM/AIG's bailouts. https://www.nytimes.com/2014/12/20/business/us-signals-end-o... > In all, through TARP and other efforts, taxpayers injected $426.35 billion into banks and auto companies. The sale of stock and interest payments brought in $441.7 billion.

If you made a 3.5% profit (total, not per annum) on your incredibly risky investments between early 2009 and 2014, that's a fail.

For you or I, yes.

We aren’t big enough to put “saved the economy” in the pros column.

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

#95

Post by foldr » Sat, Mar 28, 2020, 6:53 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?

I don't know. If they don't, or if it's unaffordable, then that means that a lot of "private" businesses are actually implicitly backed by public money. Something to bear in mind the next time these companies complain about government interference, or libertarian types complain about paying taxes.

Most likely, the price of flights would be an order of magnitude greater if airlines weren't (through various direct and indirect means) publicly subsidised.

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

#96

Post by [deleted] » Sat, Mar 28, 2020, 7:01 PM UTC

HumblyTossed wrote: post #17

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.

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.

[deleted]

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

#97

Post by crankylinuxuser » Sat, Mar 28, 2020, 7:03 PM UTC

xkvd wrote: post #92

iso1210 wrote: post #31

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

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 acro…

> 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???

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

#98

Post by nopriorarrests » Sat, Mar 28, 2020, 7:03 PM UTC

xkvd wrote: post #92

iso1210 wrote: post #31

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

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 acro…

>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?

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

#99

Post by adventured » Sat, Mar 28, 2020, 7:05 PM UTC

sadfklsjlkjwt wrote: post #24

dominotw wrote: post #11

Earlier quoted context omitted.

>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.

Equinor (formerly Statoil) does fairly well for Norway.

The reason Norway does well with oil in a socialized manner is because their oil per capita is extreme, and the action of extracting and exporting oil from a well-known oil zone is a predictable industrial activity (prices are the primary wild card that you adapt to). It's among the highest per capita oil production in the world. That is not a scenario that replicates to our incompetent Congress managing airlines for a couple hundred million people, and such that the airline finances are a rounding error for the American people (annual checks for maybe $20 per adult), while we shovel more complexity and bloat on the Congressional plate (when they're not doing their job well as it is; do not give them anything else to manage that isn't absolutely necessary). The better way is to implement payback / return requirements for any bailout.

There is a good reason why Norway doesn't lead the world in very many things industrially, a reason why there are not plentiful other examples out of Norway of this model working.

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

#100

Post by skannamalai » Sat, Mar 28, 2020, 7:23 PM UTC

wpasc wrote: post #83

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.

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.