US airlines have just received nearly $50 billion worth of loans and grants through the CARES Act. President Trump has now suggested a new way to provide the major airlines with funding, though I don’t think they’ll be a fan of this concept.
Trump wants to pre-purchase airline tickets
During the signing of a further $484 billion coronavirus relief bill yesterday, President Trump floated an idea to give airlines more funding. As Trump explained:
- The US government is the biggest customer of US airlines
- The government could buy several years worth of tickets at a very large discount (maybe 50% off or more)
- Trump thinks the airlines are going to be fine the way things are now, but he likes this as “an additional incentive”
Trump has a way with words, so here’s the transcript of what he said, because I want to make sure I’m not taking anything out of context, and make sure he’s not being sarcastic:
Likewise, I told Steve we’re the biggest user of the airlines, United States government, and one of the ways we can help the airlines is buy tickets at a very large discount, maybe 50% off or maybe more, and you buy into four or five years worth of tickets and you infuse them with some cash. And in the meantime, we’re flying the people of our country for a fraction of the cost than it would be when the airlines get back. They will get back. So we’re thinking in terms of as additional, because the airlines are all set right down, but as an additional incentive where we buy tickets in advance at a very big discount, which I’ve liked really from the beginning. And we’re not up there. Look, the fact is that the airlines are going to be fine the way it is now, but I like that as an additional help for the airlines. I like it both ways. I like it for us too. We’re the largest user of the airlines. So you buy tickets. I don’t know. This sounds good, right, if we get a good discount?
Is this actually a terrible idea?
Real talk for a second — I actually don’t think this is a terrible option for the government to at least offer airlines as a last resort. The catch is that the messaging here is way off.
From the perspective of airlines:
- There’s no way they’d take advantage of this unless this was their only option to stay alive
- Government travel in the future is virtually guaranteed, so they’d be giving up significant future revenue potential, and almost any source of funding would come with interest rates lower than this; this is even more costly than pre-selling miles
- Airlines have been getting free or very low interest money from the government, so why would they accept this?
- Trump continued by saying that “we’re going to keep our airlines and all those employees totally intact,” so airlines will no doubt call his bluff and refuse this kind of proposal, recognizing he won’t let them fail
From the perspective of the government and taxpayers, this would be a good option if airlines would accept it:
- From the government’s perspective, this would be a heck of a deal
- Those opposed to airline bailouts should be in favor of this, because it will save taxpayers significant amounts of money in the future; if Trump is promising airlines will be kept alive either way, then this would be an amazing deal
The government purchasing airline tickets in bulk at significant discounts would be the worst deal ever for airlines, and the best deal ever for the government.
The problem here is that Trump is talking out of both sides of his mouth. Airlines would only accept this proposal as an absolute last resort if all other options have been exhausted, and if they believed the government would otherwise cut them off.
Trump is saying that airlines will be fine no matter what and that he won’t let them fail, but also says that this could be “additional help” for airlines. I don’t know on what planet airlines would consider accepting payment for virtually guaranteed future revenue at over 50% off to be “help.”
If Trump wants this proposal to be taken seriously, then the messaging to go along with this should be “we’re not going to keep providing airlines with free money,” but rather should be “if airlines want further funding, they’ll have to agree to something like this.”
But then again, what do I know? I’m not the guy behind “The Art Of The Deal,” and don’t have experience running successful airlines, casinos, steak businesses, universities, and pageants.
(Tip of the hat to View from the Wing)