On Oct 1st the first round of stimulus money issued this spring will run out. Under the CARES Act, airlines received a combination of grants and loans in order to stay afloat during Coronavirus pan-demic. Part of that requirement of accepting the funds was that no employees were to be laid off and the airlines continue to serve smaller markets….until Sept 30th.

So now it is Sept 30th, should the airlines receive another bailout? Well it depends.

If you look at the airlines as a private business, then no. It is basic economics... demand has shrunk and capacity has remained the same. As a result, airlines have grounded airplanes and cancelled flights in order to shrink capacity. Of course, there will be a trickle down effect as employees are laid off and the airlines cut back on service. However, in the end the airlines will be smaller and more efficient…and will be immensely profitable.

Immensely Profitable....how?

Well, airline traffic will eventually rebound. It will likely be 2022, or maybe even 2023 before passenger demand will return to 2019 levels. The airlines have parked big jets and cancelled a lot of flights. We may even lose an airline or two to bankruptcy within the next year (thinking American here). In the end capacity will shrink and it can take years to rebuild. Meanwhile, with demand will return far faster which will outstrip capacity. If you go back to your basic economics, when demand outstrips capacity….prices go up, and will go up a lot. The result will be a lot of passengers chasing a few seats which will make for some very expensive airline seats with a lot of restrictions in 2024, 2025 and maybe thru 2030. The result will be consumers will eventually pay higher airline ticket prices.

However, if you look at the airlines as utilities, say like our energy company, or even a tollway; then a bailout should be given to assure that the same service is maintained for when demand finally does return. The result is capacity is maintained beyond current demand. Eventually demand will increase. The result is lower ticket prices in the future since there will be plenty of airlines, and airline seats in the maket.

So in the end, it is pretty much the choice of pay now with tax payer money or pay later through higher airfares. That’s why if Republicans were smart….well, we won’t get political here. I am sure the US Senate will be smart enough to figure that out.

Photo courtesy of Sam Chui @ https://youtu.be/qqHMWvBp5RM

Retro Travel:

Who would have thought of the "L" in Chicago as a way to attract tourists? Well in the early 1900s it was. People would come from all over to ride this new high speed train tech.

Have things changed? Not really

If you look at the advertisements for the Hyperloop, it really is the same story over again. Cutting edge tech that will change how people move not only through the city, but beyond the city.

That's why to look forward...ya should look back first.

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Apr 05, 2021

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Airline Stimulus: Pay Now or Pay Later?

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