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

finance.yahoo.com

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

#101

Post by 6gvONxR4sf7o »

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.

Maybe there could be some form of insurance.

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

#102

Post by esturk »

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...

if this is true then it was even more prudent for them to keep savings for the future and not do stock buyback.

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

#104

Post by xnyan »

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…

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.

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

#105

Post by esturk »

jdsully wrote: post #86
mrgordon wrote: post #82

Earlier quoted context omitted.

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.

I think you misunderstood what our parent post meant. They are not questioning that airlines are not very profitable but that because of the low profit margins, the airlines should've saved those money and not spend it on stock buyback.

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

#107

Post by reilly3000 »

sfkdjf9j3j wrote: post #85
hkmurakami wrote: post #35

Earlier quoted context omitted.

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?

Right but they maintained a whole tax producing economic center including (probably) corporate taxes and income tax on hundreds of thousands of wages from the companies themselves and their suppliers. Breaking even on a bailout is pretty phenomenal given the broader implications.

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

#108

Post by dlp211 »

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.

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.

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

#109

Post by Scoundreller »

adventured wrote: post #73
Scoundreller wrote: post #58

Earlier quoted context omitted.

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.

You're only counting the dollar return. As a social institution of government, you'd want to price in the upside of not having the US auto manufacturing industry implode, with vast unemployment, lost manufacturing that would never return, and GM itself collapsing along with its jobs. It's considerably beyond your figures. Alternative, nationalize it? Now that's a real disaster, having the US Government in the auto ma…

I'm not saying the government made a bad decision, but they should have rigged the deal more in favour of the people instead of the company if things succeeded.

Getting a 3.5% return over that time period didn't account for the risk that they took. They should have ended up at least doubling their money at the cost of the shareholders/equityholders that remained.

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

#110

Post by Retric »

jdsully wrote: post #84
phkahler wrote: post #39

Earlier quoted context omitted.

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.

The government got shafted by vastly below market returns. Economists are looking at the big picture but tend to ignore people picking your pockets as insignificant. Loss aversion means people actually care about these things, it’s just the simplified economic models that are ignoring them.
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