- 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 that could get even worse.
- In the fall, airlines can start buying their own stocks again – potentially leading to higher fees and fewer staff.
If you’ve even thought about boarding a plane this summer, you’ve probably heard the tales of travel chaos.
Passengers are getting hit with delays, cancellations, and rebookings – it’s forced some people to spend the night at the airport, sleeping on chairs and boxes.
Sara Nelson, the international president of the Association of Flight Attendants, warns more chaos could be coming this fall when airlines are allowed to buy their own stocks again.
That’s because a ban on what’s called stock or share buybacks expires for the industry in September. The ban was originally implemented as a condition of the federal stimulus package that helped save airlines during the onset of the pandemic. Nelson warns the end of the ban could mean increased fees, less service, less staff, and “more chaos” in the operation.
In a stock buyback, “a company will choose to purchase its own shares from shareholders, and it will take these shares completely from the market,” Petra Sinagl, an assistant professor of finance at the University of Iowa, told Insider. That gives money to shareholders, and lowers the number of shares outstanding. “This will at least temporarily increase, for example, the reported earnings per share, because you are basically dividing the same earnings number by a lower number of shares outstanding,” Sinagl said.
Stock buybacks have been particularly prevalent in the airline industry over the last ten years or so. As Insider previously reported, airlines like American and Delta poured billions into stock buybacks in the years before the pandemic. For instance, 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 stock buybacks as they were trying to encourage people to invest in airlines again,” Nelson said. “But a huge portion of the profits went to stock buybacks that don’t reinvest in the company, 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 over an industry that had been pouring billions into itself asking for billions of dollars in bailout money. In March 2020, for instance, Bloomberg found that, over the previous decade, the largest airlines in the country had spent 96% of their cash flow on buybacks.
“Part of what we put into the COVID relief plan was a ban on stock buybacks,” Nelson said. That measure attracted support from Democrats – and then-president Donald Trump.
“We had originally suggested seven years or permanently, and ultimately it got down to a year,” Nelson said of the ban. “But it was during the COVID relief and a year after, so that will end on September 30th of this year.”
Economic research finds that buybacks can improve the liquidity of firms, and make prices more efficient, according to Sinagl. But it’s also true that companies that missed their forecast earnings are more likely to participate in stock buybacks – and, when that happens, it’s linked with “reductions in employment and investment.”
Airlines, especially Delta, were hinting in earnings calls that they were gearing up to restart buybacks right away, according to Nelson.
“We can’t do anything at the moment with respect to CARES Act limitation,” Ed Bastian, CEO of Delta, said in the company’s earnings call. He added: “But we talk over the long term that we’ve got a responsibility to all constituencies, to our customers, to our employees, and importantly to our owners.”
Nelson said it’s “incredibly irresponsible” for airlines to consider putting those first pandemic profits to stock buybacks. For consumers, she said it likely means higher fees, less service, and less staff.
“This matters for labor, but it matters for anyone who flies,” Nelson said. At a minimum, according to Nelson, people should be demanding that the ban continue until the chaos gets under control, and union negotiations that have been pushed for years finally settle.
“Congress should be looking at what it looks like when you actually have a company focused on the business,” she said, “and not constantly having pressure from investors to siphon off those profits for short-term gain for investors and long-time harm to the company – direct harm to the people on the front lines and the customers who are trying to get a service. “