Why should the gov't bail out the airlines?

This is not a rant - I’m really curious…

Why should the government bail out an airline who lost money last week to prevent them from bankrupcy? I mean, it’s a for profit busines. If they aren’t profitable, or didn’t manage properly, why should the taxpayers pay to bail them out?

How thin are their margins? How could taking a hit like this put them out of business? I assume it’s based more on cash reserves and cash flow.

If I had a restaurant and a car crashes into it, I’m not entitled to a bail out. Why are they?

I’d say a bailout is a reasonable course of action because the airlines are a major player in US business as a whole, and this terrorist action threatens all of them. Between the airlines and Boeing, there could be 100K people laid off in the near future, that’s bad news all around.

Add to that the fact that this is not a case of one airline being driven to bankruptcy by better run competitors, the gov’t should leave that stuff alone. It is a case of a single terrorist action crippling one of our major industries.

The gov’t should take action to ensure that this vital service remain available to the populace. Whether that action includes a bailout is their call.

The government specifically ordered the airlines to stop flying. As a result, the airlines lost money. In addition, the original attack was against the U.S., not the airlines. The airlines suffered because of the U.S., or things the U.S. did, so the U.S. government felt obligated to make good on that.

Partly because airlines aren’t really a for-profit business. As I understand it, the airline companies never make a profit (even with all the grumbling about high ticket prices and such). A big part of this is probably due to lawsuits, insurance, and such due to the minor incidence of plane crashes.

Airlines are probably considered almost a “public service” company; there aren’t that many of them (what, 8 or 9 major ones? something like that), they employ many, and the government probably figures it won’t be good for anybody if there are fewer airlines operating.

Note that I’m not necessarily endorsing the fact that the government is giving out money to a business concern, I’m just trying to shed a little light on why they’re doing it.

Flying is expensive. Unless, for example, you standardize on one type of plane to reduce training and maintenance costs, and focus on a low-price model. Then you make money.

Southwest Airlines stock details - note a reasonable P/E of about 16.

occ said:

I can assure you that in the UK the airlines certainly are a for-profit business. I’m intrigued; what business-model do the airlines in the US follow?

(note, I’m not saying that all airlines always do make a profit, just that there is a huge distinction between not making a profit, and not wanting to).

ShouldBeWorking, haven’t you been reading the news? The US government ordered an entire industry to cease all operations for the better part of a week. In addition to the lost revenue from this order, the airlines had to spend a considerable amount of money to take care of stranded passengers (they spent at least $150 on me, for example.)

These losses were created by the government’s order, so it’s only logical that the government should make those losses good if possible.

On top of that, air travel is (in the short run) essential to the economy. The government doesn’t want an already rattled economy to be further spooked by the demise of a major carrier. (Tho’ it seems to be willing to let minor airlines like Midway go without any fuss.)

Airlines are more like a utility than a free market company. There are serious FAA regulations on just about everything. Routes are highly regulated, especially in the international market. Not sure about prices.

Many global airlines are government supported, and therefore unfairly compete.

Also, airlines are the one’s largely responsible for and paying the price for security.

There is a real risk that the airlines could go bankrupt because of the government grounding the fleets. Functioning, efficient air travel is a critical part of the US economy.

US farms are for profit & the US gives them welfare money.

AIrlines are important to us because they carry our mail, medical supply stuff, paperwork, etc, we need them.

This is patently untrue, as a quick web search will show. I simply searched for “airline profits” and got thousands of hits, including:

A travel agent industry magazine article from http://www.findarticles.com/cf_0/m0VOU/12_294/54636877/p1/article.jhtml

The Detroit News on Northwest Airlines at http://detnews.com/2000/business/0001/21/01210058.htm

This article includes a chart of Northwest Airlines profitability over 5 years. In 1995 Northwest made $392 million in profit, for 1996 it was $536 million, 1997 was $592 million, 1998 saw a loss of $285 million, and the 1999 profit was $300 million. Over this 5 year period Northwest made over 1.5 BILLION dollars. Not exactly a non-profit organization.

And, finally, how the airline industry as a whole fared in 1998 and 1999, from Airwise News at http://news.airwise.com/stories/99/09/938596219.html

Up until Sep 11, the US airlines were projecting a $1.5 billion combined loss for 2001. Low load factors and high fuel prices are considered the major culprits. At least some route cuts and layoffs would probably have occurred without a terrorist attack. The government isn’t offering - and the airlines aren’t asking for - a bailout of this stuff. As said above, the attack caused some unique costs to the industry. It is fair for the government to step in and reimburse those.

The impending unemployment of over 100,000 taxpayers is a powerful incentive for the government to act as well, regardless of whether or not those layoffs are related to the attack.

Airlines are going to be big money-losers in the coming months when law firms start placing blame for the WTC incident. Not even their lobbyists will be able to help them this time.

Consider that to be 100,000 families expected to be directly affected by layoffs, and these are among the higher paying jobs in our ecomony. A big blow which will send serious ripples throughout the national economy. Consider it a long slow slide, made more severe by 9/11 and the loss of consumer confidence overall. The government can’t allow this to happen to an entire industry damaged by events out of their control.

The news reports in Houston are that the airline will being laying employees off, even if the government bails them out. The bail out is to keep the airlines from showing a large loss. That would hurt their stock price, and so the bonuses for their executives. The airlines will be cutting back flights, and so employees, because fewer people are flying. The government may give the airlines money so their profits don’t fall much, even with the fewer flights, but the employees are still fired.

Being closed for three days should not kill any efficient business. It happens all the time due to storms.

As for higher operating costs due to increased security requirements, the government has ordered pipelines, utility companies, and power plants to increase their security. There is no talk of the government paying for it. The government does says it will consider approving rate increases so the companies can pass the costs on to the consumer. Similarly, airlines can raise their prices to cover their operating costs.

Any government bailout of airlines should not be based on their claims of terrorism costs, but follow the bailout of Chrysler. They are companies caught in a bad environment so they can’t raise their prices. But they are large enough that it’s better to try to keep them in business than to let them fail.

This is more of a debate than a General Question, so I’ll move it to GD.

moderator GQ

Sorry if I’m doubling up on someone else’s comment. Seems obvious enough that someone must have already said it…

After what happened last week and the possiblity of further attacks, no one wants to fly any more. I work for a Japanese airline, and even we’re losing reserved customers left and right after last week’s attacks. All the customers are scared, so no one’s paying. The airlines have a really tough time ahead until they can win back the trust of their passengers.

What planet are you on?

A storm effects a small portion of an airlines business for a couple of days. They still get to fly all over the place everywhere else.

We are past a week now, and air travel isn’t anywhere near where it was on 9/10.

For starters, the airlines had to just fly all their planes around just to get them where they belonged. Then they had to deal with massive cancelations because nobody wanted to fly. This attack has delivered a blow to our airline industries’ demand that will take years to recover.

All these carriers were souped up and had their financial plans based on certain projections of a certain volume of air travel. Now those projections are out the window.

Has anyone seen a stat on how many people are flying daily now as compared to last monday?

  1. The September 11 attack was an attack on the United States of America, not on the U.S. airline industry specifically.

  2. The airline industry has borne, and will continue to bear, a considerably disproportionate share of the costs of this attack.


  1. Since they’re taking a hit that was aimed at the country as a whole, the country as a whole ought to help them deal with it.

Because airliners are neat that’s why!

I mean, look at a 747. Just look at it. Take a good, long, steamy look. It can lumber into the sky at a maximum takeoff weight of 400 tons, can climb until it’s nearly ten miles high, and hurtle itself through the air at over 600 miles per hour over the entire distance between Los Angeles and Tokyo. And in terms of miles covered per gallon of fuel burned per passenger carried, it’s the single most fuel-efficient vehicle ever built.

What would we be without airliners plying the skies?

Ah…that sounds dubious. I think the distinction of the most efficient form of transportation is the bicycle. I am also under the impression that rail is more efficient than planes, although I could be wrong on that.

That being said, I think the airlines do need some sort of help in this current crisis. I also think, however, that if any airline executive a few years from now is talking about how wonderful the free market is and how horrible the evil government is, he should get a big kick in the ass!