How The Government May Provide Aid To US Airlines

Filed Under: Misc.

Update: See here for the latest letter from US airlines to Congress.

Today Delta revealed some drastic measures they’re taking in light of the current situation, including grounding 300 planes, canceling 40% of their flights, and… asking the government for help?!?

How the government may help US airlines

I think Delta’s request for government aid caught a lot of people off guard:

  • Is the situation so bad already that even the most successful of the “big three” US carriers needs help for the government?
  • What kind of help should the government be providing to airlines (especially given the lack of help for individuals so far)?

As reported by @SalehaMohsin, the White House is apparently considering providing aid to airlines, and is primarily considering two options.

Let airlines keep the federal excise tax

Ordinarily airline ticket prices include a 7.5% federal excise tax, and the White House is allegedly considering letting airlines keep this tax. It’s not yet known for how long they’d let airlines keep this or quite how big the impact would be.

To give a sense of the scale we’re talking about, Delta’s revenue in 2019 was $47 billion, though not nearly all of that is subjected to the 7.5% tax, as many fees and other types of revenue aren’t subjected to it.

Depending on how long airlines would be allowed to keep the federal excise tax, this could be worth hundreds of millions, or even billions, of dollars.

Let airlines keep the passenger facility charge

Every airline ticket comes with a $4.50 per segment passenger facility charge, which is intended to be invested into airport infrastructure, etc. Apparently the White House is considering letting airlines keep the passenger facility charge.

Presumably airlines wouldn’t get to keep both the federal excise tax and passenger facility charge. I’d assume that for most legacy airlines, keeping the 7.5% federal excise tax might be greater, while for ultra low cost carriers, keeping the passenger facility charge might be better.

Bottom line

When I first heard that Delta was seriously considering asking the government for aid I wondered what form that could possibly come in. The options that the White House is considering aren’t unreasonable, in my opinion, given just how dire the situation is.

Being able to keep either the federal excise tax or passenger facility charge would presumably make a huge difference for airlines, depending on the period of time over which they’d be allowed to keep it.

For what it’s worth, the hotel industry is also asking for government aid.

What do you make of the airline aid options that the government is considering?

Comments
  1. As far as I know, it’s not up to the white house. Nancy Pelosi oversees the House, which is where bills related to the budget need to come from.

    The white house proposal rewards a private company at the expense of local governments who rely on those fees to maintain the airports.

  2. This is dumb, reducing or eliminating that taxes doesn’t mean the airline gets to keep them. With market prices falling, they likely as not get handed to the consumer in fare cuts, which may generate some extra revenue at the margin. This is ECON101. It also doesn’t matter squat if they get to keep the taxes if no one is buying tickets.

  3. @James S-without functioning and viable airlines the local communities would not need airports. So I guess your approach does save the expense of maintaining local airports.

  4. Have a Medicare for All type industry. Let the airlines fail then have the federal government take over the remaining airlines. After all, Bernie Sanders claims Medicare has a low expense ratio so a new US Airlines (run by the federal government) could have equally low expense ratios. This is a golden opportunity.

  5. The 7.5% excise tax wouldn’t be fair to LCC since they already avoided much of those already. Or is it a good way for the government to payback these LCC. From the looks, there might be nothing left to SAVE.

  6. Derek, I don’t recall the oil shocks of the 70s putting them out of business…. Thanks to the regulation

  7. The problem, as mentioned on a previous thread, is the last time we bailed out airlines (9-11) we got really nothing back except more profit-mongering for the airlines (no more meals, more seats per plane, baggage fees, seat choice fees, this fee, that fee). So there is limited goodwill towards the airlines now.

    Also why should airlines get bailouts- what about the airline employees? other people who have been hardshipped by the virus.
    Slippery slope.

  8. Keep the tax in the form of a low-interest loan. C suite agrees to max salaries of $500k until loans are paid in full.

  9. This is as dumb an idea as reducing the payroll tax to help people who can’t work…. If you’re getting paid zero, who cares if you have an extra 7.2%, it’s still zero lol.

  10. It’s no surprise that airlines are already requesting government aid. This is them trying to cover all bases and make it seem like they knew this situation was a possibility from the start. That being said the multiple travel bans do nothing except give US and European airlines a much tougher time weathering the storm of Coronavirus. If the biggest and most stable airlines are already issuing serious warnings then the future for smaller airlines (cough Norwegian cough) looks much bleaker.

  11. Travelers look at the bottom-line cost, which includes the taxes. Might as well let airlines charge an extra $10 per ticket, and let them keep that too. No one will know the difference, until competition sets in.
    Airlines should get paid when a plane takes off at least 80% full. Then they should get a subsidy for every day a plane sits idle. This will both assure profits, and keep Greta happy. Airline employees can get extended unemployment benefits. Flight attendants can be retrained as healthcare workers. We all know, they’re going to be needed. Pilots can be paid for tutoring by voice coaches, so when they return to work we might understand what they are mumbling up there.

  12. So the Delta, United and AA are now ok with government subsidies? Subsidies are of for DL, UA and AA but not the M3? Isn’t that unfair business practice? Hope this will be the end of the ranting about the M3 getting government subsidies. Ok sure things are dire. But so what? Business is business. Survival of the fittest. Hypocrisy at its finest.

  13. @Lucky
    I believe Delta said it would cut 40% of its capacity, not necessarily flights.

    Its entire transatlantic and transpacific networks amount to about 30% of its capacity which is usually measured by ASMs – but they will fly some of each of those including to Africa.

    The likelihood is that Delta will cut the majority of its Asia and Europe networks with 20-25% of its domestic network at this point.

  14. I will be having NO GD bailouts for these GD airlines!!! NONE!!

    I want to see airlines go back to 1957 style, everyone wearing a suit, people being polite and not allowing all the flotsam and jetsam along with their “service animals” fly with them.

  15. This really frosts my ass! The airlines squeeze us for baggage fees, seat fees, fares have been going up, loyalty programs being stripped, the consumer has been taking it the can. And now they want our tax dollars too? Hell NO!

  16. @Derek on please, you never heard of de-regulation in U.S. airlines?! Government owned and operated anything never is cheaper because there is no incentive to be efficient.

  17. …so the ones obsessively fighting against government aids for airlines worldwide want government aids now – that’s pure bigotry

  18. I realise the current situation is dire for airlines all over the world. Apart from the US carriers, there are talks that Lufthansa might seek state aid as well. However, in my view, there is a certain amount of hypocrisy in regards to these requests. All of the airlines in question have complained about the state aid that they claim the “ME3” are receiving (even though this is questionable in the case of EK and QR). Now, as soon as a crisis hits, they are after the same….

  19. Reduced wear and tear, reduced fuel costs, voluntary unpaid days off, low interest rates…. the airlines are fine.

  20. Airlines shouldn’t get a dime. Not when they charge us for a cold turkey sandwich, select a coach seat or check a bag in. We’ve bailed them out before and in return they paid us back by ripping us off. When they’re making billions they don’t care of the customers. United is a great example.

  21. Remember that HUGE campaign Delta waged against middle eastern airlines getting government subsidies?

    My, my, how the tables turn….

  22. NO bailouts for airlines, banks and hotels – NONE!!! Screw you all! after screwing with us…you get NOTHING!!!!!!!!!!!!!!!! They can afford to feed themselves…bunch of thieves. Instead, I want all that money distributed to their front line employees who are directly affected and who badly needs those paychecks….No execs, no upper mgmt people gets anything!!!

  23. Smh…..is the situation this bad ??? I can not believe this question is even being asked. The entire travel & entertainment industry has ground to a halt and will remain that way for at least 30 days. Corporations have eliminated all travel. Planes are empty, airports are empty and this thing is going to last for WEEKS. How could this come as a surprise to anyone. Planes were grounded for about a week after 9/11 and most airlines declared bankruptcy as a result. This is expected to last at least 4 times as long if not longer.

  24. To see the credulity, the lack of questioning, the willingness to obey…I’m losing respect for people.

  25. It’s sad to ser people reacting with their livers in a time like this. Bad as they are, we need airlines functioning. Even if you have to pay for that turkey sandwich or to select a lousy, tight basic economy seat, it’s still better than having no way to fly, not to mention the thousands of employees and the whole community that depend on the travel industry. There is a time to lecture and chastise these companies, but it’s not now. Governments should (and certainly will) help them weather the storm and try to keep this a temporary crisis. Society doesn’t benefits from letting huge, essencial companies going under out of spite, even if that spite is dressed as “principles”

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