American Airlines: bailout cannot prevent summer turbulence

Maybe some of the money could have gone to management consultants? American Airlines has been forced to slash a portion of its summer flight schedule because of a shortage of staff as well as the customary seasonal stormy weather. The irony is not lost on customers. Taxpayers provided tens of billions of dollars in 2020 to keep air carriers out of bankruptcy and their employees on the payroll. 

Still, Americans should feel good about the largesse heaped upon airlines. Air travel continues to rebound. The financial distress avoided and jobs saved have almost certainly made for a smoother summer travel season.

Before the recent curtailment, American Airlines had declared that its July schedule would feature only 5 per cent fewer seats than its offering two years ago. The figure was far more optimistic than rival United, which had reduced seats available by a fifth. Airlines have always struggled to maintain seat supply discipline against the temptation of chasing marginal revenue. Economics aside, adjusting capacity requires mastering the tricky science of putting planes and staff in the right place at the right time.

The union that represents pilots says it warned American Airlines that its ambition exceeded the available resources needed to hit goals. Carriers in the US are pleasantly surprised by how quickly travel has recovered. The TSA has been screening roughly 2m passengers a day in the country, four times the figure a year ago.

American Airlines received more than $12bn from the US Treasury through the “Payroll Support Program”, designed to keep employees from being laid off when the pandemic hit. Capital markets were co-operative as well enabling the airline to raise $13bn in debt and equity as a supplement. Shares have more than doubled from their 2020 lows even as the airline’s debt and equity issuances have been sharply dilutive.

The operational hiccup is in some way a return to travel normality. It also marks the chance to evaluate the efficacy of the airline bailout programme. Without the money, American Airlines and others would have had to lay off tens of thousands of pilots and staff. An accompanying bankruptcy would have further complicated the carrier’s ability to ramp up operations. Why this industry received such uniquely favourable treatment is an important question. But even aggrieved summer fliers should be glad that it did.

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