- Travel chaos has abounded this summer, as passengers deal with delays, cancellations and lost luggage.
- Sara Nelson, international president of the Association of Flight Attendants, warns it could get worse.
- In the fall, airlines may start buying their own stock again, which could lead to higher costs and fewer staff.
If you’ve even thought about getting on a plane this summer, you’ve probably heard the stories of travel chaos.
Passengers are affected by delays, cancellations and rebookings – this forces some people to spend the night at the airport, sleeping on chairs and boxes.
Sara Nelson, international president of the Association of Flight Attendants, warns that more chaos could ensue this fall when airlines are again allowed to buy their own shares.
That’s because a ban on so-called stock or stock buybacks expires for the industry in September. The ban was originally implemented as a condition of the federal stimulus package that helped rescue airlines early in the pandemic. Nelson warns that ending the ban could mean higher fees, less service, fewer staff and “more chaos” in the operation.
In a stock buyback, “a company will choose to buy its own shares from shareholders, and it will take those shares completely out of the market,” Petra Sinagl, an assistant professor of finance at the University of the Netherlands, told Insider. Iowa. This gives money to shareholders and reduces the number of shares outstanding. “It will at least temporarily increase, say, reported earnings per share, because you’re essentially dividing the same earnings figure by a lower number of shares outstanding,” Sinagl said.
Share buybacks have been particularly prevalent in the airline industry over the past decade. As Insider previously reported, airlines like American and Delta invested billions in stock buybacks in the years before the pandemic. For example, in 2019, American spent $12.6 billion paying its employees. But, from 2013 to 2019, they spent $12.9 billion on stock buybacks.
“There was so much pressure on the airlines to announce these huge share buybacks as they tried to get people to invest in airlines again,” Nelson said. “But a lot of the profits went to share buybacks that don’t reinvest in the business, that don’t contribute to the long-term success of the airline, that don’t invest in the workforce. .”
So when the pandemic hit, there was outrage at an industry that had poured in billions of dollars asking for billions of dollars in bailouts. In March 2020, for example, Bloomberg found that over the previous decade, the nation’s largest airlines had spent 96% of their cash on buyouts.
“Part of what we put in the COVID relief plan was a ban on stock buybacks,” Nelson said. The move drew support from Democrats — and then-President Donald Trump.
“We originally suggested seven years or permanently, and eventually it was reduced to one year,” Nelson said of the ban. “But that was during COVID relief and a year after, so it will end on September 30 of this year.”
Economic research reveals that buybacks can improve companies’ liquidity and make pricing more efficient, according to Sinagl. But it’s also true that companies that have fallen short of their earnings forecasts are more likely to participate in share buybacks – and, when this happens, it’s linked to “job cuts and investments”.
Airlines, especially Delta, were hinting in earnings calls that they were preparing to restart takeovers immediately, according to Nelson.
“There is nothing we can do at this time regarding the CARES Act limitation,” Delta CEO Ed Bastian said on the company’s earnings call. He added: “But we are talking long term that we have a responsibility to all constituencies, to our customers, to our employees and most importantly to our owners.”
Nelson said it was “incredibly irresponsible” for airlines to consider putting those early pandemic profits into share buybacks. For consumers, she says, that likely means higher fees, less service and fewer staff.
“It’s important for work, but it’s important for anyone who flies,” Nelson said. At a minimum, according to Nelson, people should demand that the ban continue until the chaos is brought under control and labor negotiations that have been put off for years are finally settled.
“Congress should look at what it looks like when you actually have a business-driven company,” she said, “and not be constantly pressured by investors to siphon off those profits for short-term gain for investors and long-term harm to the business – direct harm to people on the front lines and customers trying to get service.”
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