The Corner

U.S.

The Airline Bailout and Furloughed Employees

An American Airlines Airbus A321 plane takes off from Los Angeles International airport (LAX), March 28, 2018. (Mike Blake/Reuters)

As you may remember, $29 billion of the airline bailout went toward payroll support grants to passenger and cargo airlines. In its open letter to Congress, the airlines said that the money would allow them to keep everyone on for at least five months:

If worker payroll protection grants are enacted, equaling at least $29 billion, participating
passenger and cargo air carriers will not furlough employees or conduct reductions in force through August 31, 2020.

Congress agreed and offered the $29 billion in grants on the condition that airlines won’t cut compensation or furlough anyone before September 30. Here is the section in the CARES Act:

(1) refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2020;

For that reason, many people are willing to overlook their usual objections to bailouts (that wasn’t enough for me). But here is the thing, as Gary Leff writes over at View from the Wing:

The bailout actually does allow an airline to furlough up to 10% of its employees (and restrictions lift October 1, 2020.) And those who are still working will receive minimum hours. For instance a part-time employee who had been working 25-30 hours might only work 10 or 12 hours going forward and become eligible for newly more generous unemploymentEven though airlines are getting a bailout, expect some airline employees to go on unemployment anyway.

I was surprised by this. So I went and looked at the CARES Act and realized that in the loans, loan guarantees, and other investments section, the requirements were — as Leff says above — that “the eligible business shall maintain its employment levels as of March 24, 2020, to the extent practicable, and in any case shall not reduce its employment levels by more than 10 percent from the levels on such date.”

I assume the thinking behind the act was that those airlines who get a loan can furlough their employees but those to take both a grant and loan shouldn’t. We will see whether the Treasury enforces this or not since the act isn’t clear.

As Leff noted above, for part-time workers, the expectation is that everyone will be paid for minimum hours. These employees will be covered for the hours they lost through the expansion of the unemployment benefits under the CARES Act. That will be a surprise, I assume, for those people who favored the bailout to avoid the cost of welfare payments.

It is also clear that the bailout is only postponing airlines’ layoffs until after September 30th, 2020. United, for instance, has already said that this bailout won’t be enough to keep it from laying off employees. 

By the way, airlines aren’t very good rule followers to start with. According to this Department of Transportation’s directive dated from March 4th, if one’s flight was canceled by the airlines, that person is “entitled” to a refund: 

If your flight is cancelled and you choose to cancel your trip as a result, you are entitled to a refund for the unused transportation – even for non-refundable tickets.  You are also entitled to a refund for any bag fee that you paid, and any extras you may have purchased, such as a seat assignment.

My own dreadful experience with Delta is that the airline refuses to give me a refund and claims it can only give me a credit. Listening to other people, it is apparent that airlines have been blatantly flouting their obligations to return consumer money for services not provided. A few days ago, the Wall Street Journal reported about passengers’ awful experiences with airlines here. Here is a section about Delta:

Delta has been charging some customers “cancellation fees” if they want cash back. One customer was offered cash instead of a voucher if the airline kept $200 per international ticket. Another was charged a $150 cancellation penalty after canceling an early April domestic trip online, then told the only way to avoid the fee was to call the airline before canceling.

I will refrain to say what I truly think of this type of behavior so as to remain polite. But it did cross my mind that if the government is going to rescue an industry, no matter what the circumstances are, over and over again, the incentives for treating your employees and consumers well are reduced.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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