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In March, U.S. air travel demand crashed from near 2019 levels to down more than 90% year over year. Refunds started to outpace cash ticket sales for many airlines, putting severe stress on their balance sheets. Only one thing enabled the industry to avoid desperate moves like mass furloughs and wholesale service cuts in small cities: a generous payroll support program included in the CARES Act.
That aid runs out in just a few days, but U.S. air travel has only recovered to about a third of pre-pandemic levels. As a result, airlines — led by American Airlines (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), and United Airlines (NASDAQ: UAL) — and airline unions have been lobbying aggressively for a six-month extension of the payroll support program. Yet despite broad bipartisan support for such an extension, Washington gridlock seems increasingly likely to prevent it from becoming a reality.
More payroll support needed
The CARES Act payroll support program has covered the majority of U.S. airlines’ payroll costs since the beginning of April. In exchange, the airlines had to agree not to implement any involuntary layoffs or furloughs before October. (They were also required to keep flying to all cities they served before the pandemic unless they received a government waiver, among other conditions.)
The basic goal of the payroll support program was to help airlines survive the lean period during the peak of the pandemic without resorting to mass layoffs and furloughs. Unfortunately, six months later, it appears unlikely that a meaningful air traffic recovery will materialize before next spring or summer (at best).
Airlines have aggressively pursued voluntary measures to adjust staffing levels, such as buyouts, early retirement packages, temporary leaves, and reduced work schedules. That has allowed airlines including Southwest Airlines and Delta to avoid — or at least delay — furloughs and layoffs.
Nevertheless, without additional payroll support funding, tens of thousands of airline workers will likely lose their jobs this week. American Airlines alone plans to furlough 19,000 employees without a payroll support extension. United Airlines would also furlough more than 10,000 people. (The CEO of airline trade association Airlines for America recently put the total number of jobs at risk at 100,000, although that appears unduly alarmist based on the plans airlines have publicized.)
Bipartisan support, but no deal so far
Last month, it seemed quite likely that the government would extend the payroll support program by six months. While the program has its detractors, there is strong bipartisan support within Congress and the White House for six more months of airline payroll support. Indeed, between the prospect of lost jobs in major hub markets and the risk of small communities across the U.S. losing air service, most members of Congress have a strong incentive to maintain the status quo.
The problem is that the proposed payroll support extension has been caught up in broader fights about coronavirus relief funding. Democrats are pushing another multitrillion-dollar relief bill that is too pricey for many Republicans’ taste. Republicans would prefer a piecemeal approach, but Democrats have been unwilling to go that route because it would likely doom their chances of getting funding for their policy priorities.
Airline executives, especially American Airlines CEO Doug Parker, have been vocal about the unfairness of forcing airlines to furlough tens of thousands of workers simply because of Washington gridlock. However, the system is what it is. The brewing fight over the newly vacant Supreme Court seat will only exacerbate the difficulty of passing even innocuous coronavirus relief measures.
Is late better than never?
The House of Representatives is currently scheduled to adjourn on Oct. 2 so that members can go home for a final month of campaigning before the election. The Senate is supposed to adjourn a week later. There is plenty of other business to attend to in this short period of time, including a continuing resolution to avert a government shutdown.
Of course, these schedules aren’t set in stone. Still, if there’s no deal in the next few days, it’s unlikely that there would be any chance of a payroll support extension until after the election.
By that point, the rationale for six more months of payroll support will be much weaker. The largest and most vulnerable airlines (including American and United) will probably have implemented their furloughs by then, as they can’t really afford to wait. Airlines wouldn’t be able to seamlessly recall employees who lose certifications upon being furloughed.
If Congress offers additional payroll support aid, the airlines will presumably take it, no matter when it comes. However, a payroll support extension passed before the end of September will be far more useful than one passed two or three months from now.
Adam Levine-Weinberg owns shares of Delta Air Lines and Southwest Airlines. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.
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Video: Airlines are fighting for new federal funds as October furloughs loom (CNBC)