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Airlines, Government Set for Debate Over Terms of Aid
When President Donald Trump signed the over $2 trillion stimulus package known as the CARES Act into law on March 27, he, in conjunction with a bipartisan group of legislators, touted the success of setting aside hundreds of billions for small businesses, large businesses in troubled industries and consumers, alike.
While concessions were made by both sides during the negotiations, the largest aid package in history sailed through Congress with barely a hiccup. But that proved to be only the first step in a long journey for the government and those the bill is set to help.
At a White House press conference on the day of the bill signing, Trump said the bill includes, “$500 billion in support for hard-hit industries, with a ban on corporate stock buybacks — we don’t let them buy back the stock; we don’t let that happen — and tough limits on executive compensation.”
While those may be the general terms, it’s begun to become obvious that fine details regarding the conditions of the air would prove nearly as important as the grants and loans themselves. And nowhere is this playing out on a more public stage than in the commercial aviation industry.
The section of the bill regarding airlines gave the Secretary of Transportation five days after the bill was enacted to provide airlines with guidelines for the process of applying for and receiving aid.
Of course, the bill did contain a small set of restrictions on its own. Among them was the mandate that no airline employee that made over $425,000 in 2019 could — before March 2022 — earn more than their 2019 compensation or receive twice that amount in severance. And in a move aimed directly at some of the companies’ highest-paying officers, anyone making over $3 million is limited to making $3 million plus 50 percent of the excess over $3 million earned in 2019.
Perhaps more importantly, however, was that the bill asked the Department of Transportation to ensure “continuation of service.” The first condition for this “continuation” lies in the department’s ability to require airlines that receive aid — “to the extent reasonable and practicable” — to continue service to any destination served by those carriers prior to March 1. Second, the bill required the Department of Transportation to work to preserve service to “small and remote communities” that might otherwise lose service in an economic downturn in order to preserve access to necessary supplies.
Though the industry was set to wonder what exactly those terms would mean in practice for the first few days after the bill’s release, the Department of Transportation on March 31 released all the information necessary regarding airlines’ continuation of service and the steps needed to gain aid for the next two quarters in a tentative report.
Going forward, any airline that had service to a particular U.S. destination on five or more days per week will be required to operate at least one flight five days per week to that destination. And any destination that an airline served fewer than five days per week will only be required to be served once per week.
Additionally, any destination that an airline operates flights to from more than one other destination need only to be served by flights operating one route, provided the airline still meets the first two requirements. As an example, just this morning American Airlines is operating flights into Eagle County Regional Airport in Eagle, Colo. from Dallas, Miami, Chicago, Los Angeles and New York City. But if the airline hypothetically decided it wanted to stop all service to the airport while receiving aid, operating one flight five days per week from just Dallas would satisfy the DOT’s requirement. Alternatively, operating one flight per week from each of those five cities on different days would do the same.
Another idea floated by airlines across the country in recent days had been consolidating all flights into one carrier’s operations. That would mean customers booking flights on multiple carriers could find themselves on one flight in an effort for airlines to cut costs and raise load factors.
However, the DOT’s release made it abundantly clear that would not be allowed.
“If multiple covered carriers served a point, each covered carrier would be required to serve the point in accordance with the above minimum service levels,” the statement read, “regardless of the service decisions made by the other covered carriers serving that point. These provisions do not authorize any coordination among air carriers that would violate the antitrust laws.”
While the regulator’s new information does close the door on some of the airlines’ more creative proposed solutions, it does set in stone many of the terms airlines will have to abide by if they hope to utilize taxpayer money to stay afloat. And given the current state of the industry, it will be difficult for the airlines to say no to the potential for aid.
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