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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

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?”

chki 7y ago
How could an airline company possibly be equipped to handle this kind of situation? If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"
- TeMPOraL 7y ago
  Or, legislation could be used to ensure everyone has to have that big pile of money / mitigation strategies present, so that they won't get cut out by competitive pressure. (And then the hard trick is ensuring the next folks in office won't dismantle that legislation to make some cash on the side.)
- orthecreedence 7y ago
  > If you want to be competitive on the market you need to lower costs and cut down on margins. Yes, exactly. There are certain businesses that should not be subject to market forces: essential services that have tiny margins. > You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months" Then you get nationalized ¯\_(ツ)_/¯. If you want to be privatized again, make enough money to do buybacks.
  - lazylizard 7y ago
    Maybe you can... Berkshire Hathaway? Or even apple or google?
- soperj 7y ago
  Maybe by not doing billions worth of stock buybacks over the last 10 years? They've literally been shut down for what... a month??
  - coredog64 7y ago
    If AAL had saved their entire 2019 free cash flow (literally impossible), they would still be $6B short of their projected expenses. There is very little of their cost structure that declines when the planes are parked: Employees need paychecks. Lease payments are due on the engines and airframes. Rent needs to be paid on facilities. The fuel savings from not flying are offset by the need to mothball aircraft.
    - Apocryphon 7y ago
      At least then we’d have to pay a much smaller bailout.
- rch 7y ago
  > You can't just have a big pile of money lying around in case... Banks and corporations are requiring their employees and the government to do this for them, while simultaneously claiming to be profitable.
- clairity 7y ago
  by wiping out the existing shareholders and clawing back incentives to senior execs. you can do this through bankruptcy, an fdic-like asset reallocation (without consolidation into larger corps), or something else. then the remaining market participants will figure out how to better account for such risks, which can no longer be considered rare (if they ever should have been).
- foldr 7y ago
  >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 outcomes.
  - mrfusion 7y ago
    Pandemic insurance? Lack of customers insurance? Do they sell that?
    - adventured 7y ago
      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).
    - foldr 7y ago
      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.
- mrfusion 7y ago
  Yeah everyone seems to ignore this fact.
- tracer4201 7y ago
  > You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months" You can. Keep it in some liquid investment vehicle so you can withdraw it at anytime. If you don’t want to do that, then go under and shut your business. Don’t ask tax payers to bail you out. I’m not sure why this notion of responsibility is so difficult.
- kingaillas 7y ago
  >If you want to be competitive on the market you need to lower costs and cut down on margins. Or, maybe such a business model isn't (and shouldn't) be supported by the current rules of the free market. I would say "you can't just toss in billions on average every few years" and call that a legit business model for a for-profit private corporation.
doubleunplussed 7y ago
It's not just for the benefit of the shareholders though. If it were I'd agree with you - but bailing out these companies is for the benefit of consumers, who would otherwise be without an airline industry for a while. We should try to get the shareholders to pay for as much of it as possible though, whilst allowing the industry to stay solvent. This seems like some of the intention of making bailouts in the form of low-to-zero-interest loans (not sure if that's the form the bailout ended up taking).
rdiddly 7y ago
Just gonna come right out & assert what kind of faith is backing the question eh?
nickff 7y ago
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, they have nothing to lose.
- Klinky 7y ago
  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.

chki 7y ago

How could an airline company possibly be equipped to handle this kind of situation? If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

TeMPOraL 7y ago
Or, legislation could be used to ensure everyone has to have that big pile of money / mitigation strategies present, so that they won't get cut out by competitive pressure. (And then the hard trick is ensuring the next folks in office won't dismantle that legislation to make some cash on the side.)
orthecreedence 7y ago
> If you want to be competitive on the market you need to lower costs and cut down on margins. Yes, exactly. There are certain businesses that should not be subject to market forces: essential services that have tiny margins. > You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months" Then you get nationalized ¯\_(ツ)_/¯. If you want to be privatized again, make enough money to do buybacks.
- lazylizard 7y ago
  Maybe you can... Berkshire Hathaway? Or even apple or google?
soperj 7y ago
Maybe by not doing billions worth of stock buybacks over the last 10 years? They've literally been shut down for what... a month??
- coredog64 7y ago
  If AAL had saved their entire 2019 free cash flow (literally impossible), they would still be $6B short of their projected expenses. There is very little of their cost structure that declines when the planes are parked: Employees need paychecks. Lease payments are due on the engines and airframes. Rent needs to be paid on facilities. The fuel savings from not flying are offset by the need to mothball aircraft.
  - Apocryphon 7y ago
    At least then we’d have to pay a much smaller bailout.
rch 7y ago
> You can't just have a big pile of money lying around in case... Banks and corporations are requiring their employees and the government to do this for them, while simultaneously claiming to be profitable.
clairity 7y ago
by wiping out the existing shareholders and clawing back incentives to senior execs. you can do this through bankruptcy, an fdic-like asset reallocation (without consolidation into larger corps), or something else. then the remaining market participants will figure out how to better account for such risks, which can no longer be considered rare (if they ever should have been).
foldr 7y ago
>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 outcomes.
- mrfusion 7y ago
  Pandemic insurance? Lack of customers insurance? Do they sell that?
  - adventured 7y ago
    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).
  - foldr 7y ago
    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.
mrfusion 7y ago
Yeah everyone seems to ignore this fact.
tracer4201 7y ago
> You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months" You can. Keep it in some liquid investment vehicle so you can withdraw it at anytime. If you don’t want to do that, then go under and shut your business. Don’t ask tax payers to bail you out. I’m not sure why this notion of responsibility is so difficult.
kingaillas 7y ago
>If you want to be competitive on the market you need to lower costs and cut down on margins. Or, maybe such a business model isn't (and shouldn't) be supported by the current rules of the free market. I would say "you can't just toss in billions on average every few years" and call that a legit business model for a for-profit private corporation.

doubleunplussed 7y ago

It's not just for the benefit of the shareholders though. If it were I'd agree with you - but bailing out these companies is for the benefit of consumers, who would otherwise be without an airline industry for a while. We should try to get the shareholders to pay for as much of it as possible though, whilst allowing the industry to stay solvent. This seems like some of the intention of making bailouts in the form of low-to-zero-interest loans (not sure if that's the form the bailout ended up taking).

rdiddly 7y ago

Just gonna come right out & assert what kind of faith is backing the question eh?

nickff 7y ago

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, they have nothing to lose.

Klinky 7y ago
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.