No silly, not the Play Station Portable. The Payroll Support Program as part of the CARES act passed in March at the onset of the pandemic. The PSP was a grant to help employers keep people on the payroll (and thus able to pay rent and buy goods and services.
Part of this program was a giant bailout to the national air carriers, and allowed them to prevent involuntary furloughs of their armies of workers, from baggage handlers, desk staff, flight attendants and pilots. It gave them a life line, and prevented the worst of outcomes. The airlines quibbled, but ultimately their hand was forced, and $25B USD flowed to their balance sheet.
One of the caveats of taking this money was to promise not to lay off or furlough employees until the end of September.
That time is up, and this morning, October 1, 2020, the Dude awoke to news that American will be furloughing 19,000 and United will be furloughing 13,000. No news from Delta or US Air yet, but one has to believe that they will be following suit.
At the start of the pandemic, there was hope that there would be a significant recovery, and indeed in June and July that looked plausible, but then reality set in. People are flying again, but at about 30% of the rate of the prior year.
Yeesh. The is a huge decline, and one that will leave a mark.
As part of the news reporting about the coming layoffs, the CEO of American is holding out hope that Congress will got off its collective arse and pass some additional relief.
While the Dude agrees with a need for more support for Americans in the pandemic, he questions the wisdom of propping up the Airlines. Sure, they are important, and even somewhat essential, but the reality is that it will be a LONG time until the industry returns to 2019 levels of operations.
More than a widely available, effective vaccine for COVID, it will require the public to trust its service again.
Additionally, one segment of their business that had enough profitability to allow the fare wars, and the sardine can experience of the modern coach class traveller, the business client.
Business fliers pay closer to full fare (yes, corporate travel agents negotiate, but in general, you can find cheaper fares if you are savvy), and these travelers are what keeps airlines near the black.
But the pandemic has DECIMATED this travel. At the Dude’s company, to fly, it has to be business critical (as in a major customer is down), and it needs Executive Vice President approval. Effectively that means no travel.
Repeat this across the ecosystem, and that is a lot of $$$’s not likely to return soon.
In fact, the near 7 months of the pandemic has taught major employers that video conferencing has become good enough to prevent a lot of travel. The Dude expects travel to become less and less a requirement.
About additional aid for Airlines…
The Dude is not in favor of congress granting them more of a lifeline. The longer term business outlook is that it will take many years for it to return to pre-pandemic levels, and it is infeasible to keep 60K or more employees on the books awaiting this recovery.
No, the airlines need to resize, and any bail out money should be earmarked to help the permanently laid off staff find new jobs.
Same goes for the Hotel and convention businesses. The new normal will not be like the old normal, and it is time to recognize that and plan accordingly.
The Dude knows this sounds harsh, but as he learned in Mutual of Omaha’s Wild Kingdom, Nature doesn’t play favorites, and neither does the market.
Of course, this is all happening less than 5 weeks from the presidential election, so the Dude expects Congress to bail out the airlines, throwing good money after bad. It is what congress critters do best.
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