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A Contrarian View on Why Airlines Shouldn’t Take Any Stimulus Money

Madhu Unnikrishnan

August 4th, 2020

Airline CEOs and labor groups have called for the U.S. federal government to extend the CARES Act payroll protection program by another six months, till the end of March. By way of background, the CARES Act mandated that airlines taking federal funds could not furlough or layoff employees until Sept. 30. With that deadline looming, airlines have warned that tens of thousands of employees could be let go on Oct. 1.

Airlines will be smaller in the fall; that much is known. Southwest CEO Gary Kelly said the carrier will shrink by one-quarter if demand doesn’t recover. Tens of thousands of employees across the industry already have taken voluntary separation packages or extended leaves of absence. But many airlines are warning that not enough have availed themselves of those packages and involuntary cuts may be inevitable, unless there is another stimulus.

And it was from this point of departure that Brett Snyder, who writes the influential Cranky Flier blog, made a contrarian argument, which he previewed in the Mondays With Skift Airline Weekly livestream. Snyder argues that the federal government should not provide the airline industry with further stimulus funds.

Doing so would prop up what Snyder says already has become a “zombie industry.” The original CARES Act stimulus, enacted in March, was premised on a “V-shaped” economic recovery, and provided funds to bridge the trough between what was expected to be a rapid downturn and a rapid upswing. It is becoming more apparent that there will be no V-shaped recovery; instead, we seem to be in what Snyder says is the third leg of a “W-shaped” economy. In other words, airline demand collapsed in April, started to recover in May and June, and is now on the downswing again. Add to that IATA’s forecast that demand will not fully recover until 2024, and it starts to look like airlines will have to shrink to survive.

Instead of propping up a zombie industry, Snyder argues that airlines should begin the painful process of rightsizing to match demand. The human cost of this is high; thousands will lose their jobs and livelihoods. Snyder makes a case for that a more robust social safety net for those displaced workers better serves them than requiring airlines to remain artificially large.

Snyder’s a contrarian voice in a chorus calling for more stimulus. For now, airlines are asking for more stimulus, as are their labor groups. But if the dire predictions for the state of the economy, the distance from a vaccine (and the herd immunity it will take time to confer), and the years-long recovery of airline demand come to pass, then perhaps his voice will seem prescient, not contrarian.

Madhu Unnikrishnan

August 4th, 2020

Photo credit: A traveler looks at an information board at Fort Lauderdale-Hollywood International Airport on Nov. 28, 2018.  Skift / Hannah Sampson

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