It’s only a matter of time before airlines demand a bailout, too

by Christopher Elliott on September 22, 2008

First, Wall Street is being bailed out to the tune of $70 billion. Now, Detroit is likely to get $25 billion in federal aid. Can America’s ailing airlines be far behind?

No. And you don’t need to be an overpaid airline analyst to see it coming. But the question isn’t will they ask for the government’s help, or even, when will they hit the taxpayers up?

It is, what should we ask in return?

The troubled U.S. carriers like to have it both ways. They want federal loan guarantees, grants and tax breaks, but they don’t want the government to tell them how to run their business.

When the airlines come to us, hat in hand, maybe the first thing we should tell them is: enough!

It’s possible to have a free market, where airlines vigorously compete with one another, while at the same time imposing sensible regulations on the industry.

Isn’t it time that we end abhorrent practices like predatory pricing? Shouldn’t the government be able to stop fortress hubs from forming, since they are not in the interests of taxpayers — or new airlines?

And what harm could come from passing a sensible passenger bill of rights that would ensure the basic needs passengers — who, after all, fund the government with their taxes — are met?

These are questions we should be asking now. Because it won’t be long before the airlines are at our doorstep. Not long at all.

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Tagged as: airline, bailout, federal aid

  • Matthew B

    When Fannie Mae, Freddie Mac and AIG were bailed out by the Federal government, the government took over the businesses, replacing the management with their own appointees. In the case of AIG, the government provided a line of credit at 11.5%, repayable in 2 years. For all three of these, the government has received warrants that entitle it to take up shares to 79.9% of the company. I don’t know about you, but I think the airlines are going to avoid this kind of bailout if they possibly can. Say anything you like about the current administration, but in this bailout at least, we are getting equity for our infusion of cash.

    The government may also let one or more of the airlines fail, as it let Lehmann Brothers fail. AIG, Freddie Mac and Fannie Mae are very large and their failure would cause a recession or worse. If one or more of the legacy airlines, or even one of the newer airlines, goes bust, I doubt that the government will step in to save it. If AMR Corp were to go bankrupt, I would have no trouble letting it go or putting American Airlines on the auction block. The same goes for United, Continental, USAir, Northwest, Delta, Jetblue or Southwest. The funny thing about the airline industry, there’s always someone who thinks s/he can make money from it.

  • Joe Farrell

    As a pilot and an aircraft owner, I can promise you that the only way to make a small fortune in the aviation business is to start with a large fortune.

  • Ken

    If the airlines show up with hat in hand, then this is the time to nail them to the ground. Non of these extra fees. All fees will be in the price of the ticket just llike the European Union requires. The airlines will pay the govt the required taxes on the full ticket price. There will be a STRONG passenger bill of rights. If baggage does not arrive at the destination, then the airline pays a fine to the govt and also to the passenger, in addition to proviidng the passenger with funds to acquire the nessesary items that would be required by the passenger while they wait for their luggage. Am sure others have ideas

  • http://www.wanderlustandlipstick.com/blogs/wandermom MichelleD

    I don’t know. There were some pretty serious reasons behind the government bailing out Fannie, Freddie and AIG (like preventing the financial markets from imploding).
    The airlines don’t really perform function in a similar way at the heart of the economy.
    The only reason for bailing out either Detroit or the airlines would be to save jobs and really with the size of the national debt, someone in Congress will have to call a stop to all this spending at some point.
    But, if the airlines do get govt funding, I for one, definitely hope it’s tied to all of the passenger-benefiting ideas you mention above.

  • http://www.witmornyc.com Jack Gaffney

    When my travel business specializing in corporate travel started to tank in 2001 through 2003, not one person, government entity, nothing and no one came to my assistance. I say, let the cards fall where they may. I put the pieces of my business back togather, diversified clients, instead of having dot-gone clients, I picked up attorneys, doctors, some software companies, and just small business owners and secured my business that way. I now run my 4 million dollar a year business by myself and make sure every one of my clients has consistant and excellent service. No matter if they purchase a 100.00 ticket or 10,000.00 ticket. Something the airlines seem to have forgotten. People will ALWAYS pay for service and reliability.
    NO AIRLINE BAILOUTS!!!! Let the CEO’s and all the others work the front line and make 10.00 per hour PART TIME with NO benefits and make sure they have to non-rev standby to get home or on vacation. The airline exec’s pay and bonuses are WAY out of control!!!!

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