No surprise. Anyone in a tourism industry is at risk. This is not a situation that will last long term so any tourism company that can avoid bankruptcy will come out okay in a few years, but airlines probably can't get there. The next airline all the employees of current airlines will start is as good an investments as airlines can be (airlines have historically been poor investments...)
I just realized I'm wrong about something that could be important: companies that survive might have to take on enough debt to do so that they are not able to compete will with new companies or companies that filed bankruptcy...
Any sane airline is going to try to file bankruptcy of some form now to protect themselves from new competitors that come around. There is bankruptcy provision for not paying debts for a few months while your reorganize. If you are in a tourism industry you should contact a lawyer and figure out the pros and cons of what you can do now to protect yourself in the future.
> This is not a situation that will last long term
Why, then, can’t the airlines just issue bonds, like governments do in this situation? Large companies already do this to fulfill short-term dips (see https://en.m.wikipedia.org/wiki/Commercial_paper); this would just be the longer-term version. As long as the dip will predictably resolve, banks should be willing to secure the bonds.
They have to pay them back - with what? Airlines are a low profit business - they have high cash flow, but low profit overall. Even if they do get the bonds now they will still go bankrupt over the next few years as someone else without that debt comes along and undercuts their fares. This problem has driven periodic airline bankruptcies over the past 40 years or so. (deregulation sometime in the 1970s for the US)
Capitalism is definitely ill-suited to a crisis like this. We have an enormous production chain for anything we could possibly need and we could just use that. We worked for this for generations, but we have no easy way to divert this machinery to work differently for some time.
The way it would work is, Berkshire Hathaway with their $130 billion in cash would purchase Delta outright for pennies on the dollar. Berkshire can endure whatever reasonable length of time is required to get Delta back to spitting off $6 billion per year in operating income.
Someone else with immense capital and assets would buy American Airlines (maybe Steve Ballmer or Larry Ellison would lean into that; Ellison likes airlines). Someone else would buy United, perhaps a major financial firm, private equity.
Capitalism is not ill suited for this crisis. This is not the first time we've seen this. We had Capitalism in 1860-1870 and 1918 as well. What people didn't like about this process in the past, is the way it often consolidates economic returns further, it generates huge winners and losers (in a way that seems to most to be particularly predatory or unfair, as an emotional take), and society often feels taken advantage of by people with vast well-stocked fortunes.
Don't confuse whether it would work with whether people like it or not. It works in fact and we've seen it multiple times in the past, we know exactly what happens: there are big winners (those that were prepared to take advantage) and big losers.
Many people took vast economic advantage of the Civil War, not least of all by buying their way out of serving (hiring legal substitutes). Rockefeller for example did well in commodities at this time, prior to the Standard Oil days.
> society often feels taken advantage of by people with vast well-stocked fortunes.
Given that the rich will survive this with a dent to their fortunes, while everyone else is risking losing their house, jobs, health, and even lives, this isn’t a feeling, but the reality.
If the outcome of this pandemic is Capitalism devolving into greater wealth concentration and inequality, and the consequence of that concentration is ever increasing precarity and material harm for everyone else, it is terribly ill suited for this and all other crises.
Yours is a grossly ignorant comment. This crisis was started and worsened by the Chinese Communist Party who used their one-party, autocratic power to jail doctors and journalists who were trying to help early on. Every supply-and-demand crisis in history that was managed by a non-capitalist regime such as in the USSR and Venezuela was worsened by many orders of magnitude. I'm talking about people starving in the streets while warehouses full of pork, milk, and grain rotted due to an inability to centrally manage supply chains. I'm talking about once-productive farms shutting down once the "evil greedy farmers" were run out of the country and the farms turned over to "the People" -- go read about what happened to these farms and the people who depended on them.
I know it's fashionable to rail against The Man and watch your Reddit Gold™ roll in, but I really wish you'd press pause on that until becoming a smidge better educated on the subject.
It is always remarkable when capitalist cheerleaders fly into a fit of incoherent rage over reasonable criticism of their favored system. You don't get enough out of capitalism to lick the boot that hard, buddy.
Hmm, one side of this argument appears to come prepared with facts and examples while the other side only has name-calling and insults. While I would never dream to try and change your mind, friend, I very much appreciate that you outed yourself for me so other readers are led to the correct conclusion.
> I know it's fashionable to rail against The Man and watch your Reddit Gold™ roll in, but I really wish you'd press pause on that until becoming a smidge better educated on the subject.
Under capitalism, the spare capacity that hospitals could have had to deal with this crisis, in beds, ventilators, equipment, supply chains, personnel are all defined as waste. That's what hospitals have been cutting for decades under the rubric of efficiency and profitability. Profitability under normal conditions quickly becomes systemic failure under exceptional circumstances.
You have to be drunk on ideology to not see the impending cascading failures which will occur because the profit motive necessitates the coupling of systems and reduction of their ability to absorb unpredicted shocks. Like every system, of course capitalism will fail under certain circumstances, usually circumstances that it itself creates.
>Under capitalism, the spare capacity that hospitals could have had to deal with this crisis, in beds, ventilators, equipment, supply chains, personnel are all defined as waste.
That's not true, spare capacity is spare capacity. Hospitals have a profit motive to keep spare capacity around because they want to be able to make money during surge conditions. Or, that's how it would work if capitalism was in charge. (I leave open the possibility for a lot of deviation from ideal theory in this case because the US medical system is actually a combination of the worst attributes of regulation and capitalism, committing to neither and shambling along with the most self-serving parts of each).
While it’s true that American hospitals do tend to have a lot of spare equipment and real estate, you’re exactly right that the reason is profit motive, _not_ providing healthcare. Real estate investments speak for themselves, while equipment upgrades are cooperative with regulation procedures that favor scarcity, often for the sake of profit.
Also, the American health industry does not have the labor force to facilitate a pandemic. The American Medical Association has kept it this way for a reason. The whole industry depends on scarcity. Nurses are one exception where low pay is favored. They are the peon workers of the industry but, because nurses are paid so little, there is a very limited amount of them as well.
No, under capitalism that spare capacity is seen as an investment. The US has more ICU beds per capita than any other country (https://www.statista.com/chart/21105/number-of-critical-care... - note that this is selected countries and I don't know the selection criteria so maybe someone has more that wasn't in this list for reasons). Smart investors know that spare capacity is worth a lot of profits when you need it.
The entire world was unprepared, period. If you haven't noticed, the world economy operates in a global capitalist mode. Being #1 among losers is still losing.
China's economy isn't very communist anymore. Also the things that are helping (at least anecdotally, according to family on lockdown now) have more to do with the ability to effectively implement quarantine than their economic system (which, again, isn't really a communist economy).
There's still definitely a communist party regime, for sure.
China "communist"? Nominally, but no one here or there actually believes it. It's evolved into some sort of authoritarian regime with elements of state and private sector capitalism.
It's a lot like the US really, except that the country's rulers basically choose each other directly, instead of being chosen in a public election with rigged choices. Also, it has much more direct state control and ownership of certain industries and companies, but that's not completely unlike what happened with, for instance, the big auto bailout a decade ago.
in a free society every mind can participate in solving the crisis on a voluntary basis, whereas with the model you are suggesting a far smaller group of minds would make these decisions for everyone and try to force everyone else with threats of violence and force.
In a free society every free individual can think up a solution in a totilitan society on the other hand a smaller set of people will make the decision.
I like to think for myself and would prefer to let the question of a solution be handled by as many people as possible and based on reasoning and politely asking instead of appointing a group of technocrats to be worshipped as priests.
You can have all the ideas that you want but the levers of power and the ability to actually implement response efforts at the level of thousands to millions of people, nationally and internationally, is only in the hands of a "far smaller group of minds". Neoliberalism has sold you the bill of goods that you are free because your opinion can differ from the ruling class.
But the ruling class is nonetheless going to look after its own and leave you to the dogs. They have nothing but contempt for you. They don't give a shit what your opinion is or how this series of crises will disrupt your life, and the lives of those less fortunate and more precarious than yours.
I wasn't suggesting anything apart from making better use of resources we have. Yourself and others seem to think that the only alternative to our current model of Capitalism must be a Totalitarian Regime or simply Soviet-style Communism. That's just a weird way to think.
Let them die and only recreate a downsized aviation industry that's compatible with limiting climate change, with the medium-term goal to switch it to alternative fuels.
It certainly will suck in the short term, but I doubt long term demand for air travel will go down, so most should be able to be rehired at one of the airlines that remain.
Synthetic jet fuel can be out of atmospheric carbon. (Chemically, it's jet fuel. Just synthesized instead of being pumped out of the ground.) It's more expensive than the out-of-the-ground stuff. But a lot of the price premium is currently due to a lack of economies of scale.
Airlines could go carbon neutral within a few years. Replacing the power plant is overkill.
This sounds like pure fantasy. A quick google search says the industry uses ~6.9*10^10 liters of jet fuel per year. Energy density of jet fuel is ~35 MJ/L. You would need at 100% efficient conversion ~76GW of continuous power to produce that. Realistically probably like 10x that... Current installed solar capacity is like 650GW world wide and it is not sunny all the time.
Where does the energy come from? CO2 is already "burned" you can't make an energetic hydrocarbon without providing energy, effectively "unburning"/reducing it.
If nuclear is on the table, then okay maybe but it would take decades and many billions of $ to ramp up capacity. Solar was just an example, but all of the renewables will have the same problems I mentioned, there is no way you are going to get that scale of renewable capacity installed and running just for the aviation industry any time soon. And as for fossil fuels... what? I don't even understand, why would you use fossil fuels to extract CO2 out of the air, that makes no sense...
> it would take decades and many billions of $ to ramp up capacity.
As would re-tooling (a) the economy to be less reliant on travel or (b) the entire aviation fleet to be e.g. battery-electric. Change is expensive. We're comparing costs, and when I've done that, synethetic fuel is the best near-term, i.e. within 50 years, solution.
> why would you use fossil fuels to extract CO2 out of the air
Big plants (can) burn much cleaner than jet engines. (Also, it's an interim step.)
> Synthetic jet fuel made out of atmospheric carbon.
What's your energy source?
And once you've specified your energy source why are you using that source to make jet fuel instead of directly powering things like the electric grid?
Once the world is 85%+ on alternative energy we can worry about Jet airplanes.
> once you've specified your energy source why are you using that source to make jet fuel instead of directly powering things like the electric grid
Because we need planes. Or, to put it more simply, countries that fly will outperform those that don't.
Hydrocarbons are a great energy store. And we have a global fleet that burns them. For cars, we can go electric. But for weight-sensitive uses, it doesn't make sense to go battery.
There will always be Luddites who advocate a permanent quarantine. But if that's the only solution, we'll stick with the status quo. And the status quo is untenable.
You misunderstood my question. The question is why use synthetic fuel for airplane, and natural fuel for ground stations?
Only once you are no longer using natural fuel (pumped oil) for ground stations anywhere in the world, only then does it make sense to start making synthetic fuel for airplanes.
Sorry mate. It's cheaper to make it from syngas, cow poo and other biomass. Even cheaper yet to buy it from the Saudis. It's doable but not from atmospheric CO2. We need algae of floating ferns to fix that one.
Zero-net-carbon synthetic fuels if nothing else. Hydrocarbons will have their place in the future as well, but we have to start think of them as an energy storage medium rather than an energy source.
So airlines profited around $28 billion in 2019 [1], but none of them thought to sock away money or do anything remotely forward looking or responsible in case of a downturn.
On a global scale we're seeing the results of living irresponsibly - individuals that have been spending all their earnings without putting anything away for a rainy day, and corporations too.
Of course, the government is going to bail out the enormous companies and leave the people to suffer through.
Airlines should pull themselves up by their bootstraps! Maybe they can find side jobs during this downturn. Have they considered doing part time food delivery?
No, I said nothing of the sort. I said they should have been putting money aside during the good years so they can weather the bad years.
The fact they were not shows they're terrible at sustaining a long-term successful business, and they deserve to fail. Only well run future-looking companies will survive something like this. i.e. all those companies in Japan that have been around for eons.
No, your comment was spot on and I agree with everything you've written so far. I'm just mocking the rhetoric used to blame people who fall upon hard times.
> No, I said nothing of the sort. I said they should have been putting money aside during the good years so they can weather the bad years.
Most companies would be correctly criticized for hoarding cash. Companies can also be sued for keeping too much cash on hand, as for example, is the case with apple.
FYI the Apple parent company had a massive balance sheet but issued debt against it. The subsidiaries in Europe and/or the Caribbean held that cash so as not to “re-patriate” it which would incur the US tax rate.
In practical terms, they didn’t hoard much and what they did was invested in financial instruments, so it was still increasing money velocity in the economy.
Which is what most people mean when they say "cash" in the context of company financials. As long as it's reasonably liquid, I consider it "cash". Investing in the company, on the other hand, is not liquid (e.g. hiring, buying planes, etc).
>Companies can also be sued for keeping too much cash on hand, as for example, is the case with apple.
Sounds like there should be a new law to prevent this kind of thing. As the other poster pointed out, Japanese companies that have been around for eons don't seem to have this problem, so it's quite likely they keep lots of cash in savings to weather major downturns in business.
> Sounds like there should be a new law to prevent this kind of thing. As the other poster pointed out, Japanese companies that have been around for eons don't seem to have this problem, so it's quite likely they keep lots of cash in savings to weather major downturns in business.
Japanese companies that have lasted a long time are family companies that don't have obligations to the public. The government mandates that public company boards act in best interest of the public shareholders, which means distributing their profits or using them to make money.
> individuals that have been spending all their earnings without putting anything away for a rainy day, and corporations too
In the US, half of all people having almost nothing to put away. Comparing this state of affairs to what corporations do with billion in profits is beyond parody.
Well, hate it or not but they're an absolutely vital industry in the modern day. It would be better for the world to bailout the airline industries, than to not have airlines.
Who says they’re incompetently run? You, are you a business expert? The fact is that they were victims of an incredible shock to their business model, no different than if a plague wiped out all the chickens in the world. Would you call chicken farmers incompetent in the same situation?
There is obviously a huge demand for airlines. To me that implies that new airlines will appear when old ones go bankrupt. Since airlines don't own any infrastructure, I don't think much would be lost.
Yes and no. As we've seen with empty or mostly empty flights to keep an airline's spot at the gate, airports are a finite resource. If airlines go bankrupt, you're likely to see consolidation exacerbated by a barrier to entry, absent regulation and/or antitrust enforcement.
Well if airlines go bankrupt, that's a lot of assets that could be sold at fire-sale prices, and an opportunity for other surviving airlines to jump in and take over those planes and routes. Since China seems to have contained the outbreak, and probably have the economic power to do it, maybe they'll buy up a bunch of failed airlines...
1 and 2 are important. 3 is not important. Shareholders should lose everything in a bailout, that's the deal when one decides to buy equity in a company.
> So airlines profited around $28 billion in 2019 [1], but none of them thought to sock away money or do anything remotely forward looking or responsible in case of a downturn.
Companies typically do not keep a ton of money around because they're supposed to be distributing profits to the public (i.e., shareholders). Companies that do keep money around, like Apple, are correctly criticized for not re-investing the money into the economy (thus creating jobs and growth) and not returning it to investors (who would, with the dividend, presumably invest the money in another company that had a growth opportunity).
Like it or not, re-using profits is how we have achieved the modern way of life. Keeping money lying around does not spur the economy, which means fewer jobs, fewer products, and a stagnating economy.
How about instead of simply getting bailed out they have to create additional shares that they sell to the government at the current price set by the open market. The government is then free to sell the shares after some time or to actually exercise the voting right that come with the shares if they decide to hold onto the shares.
Well when it comes to potential help from the federal government, I have no idea what form that will take. Most likely it'll be in loans. However, given what the federal reserve did recently, they did actually just give loans out and are expecting a repayment or they purchased income producing assets from large businesses. They did not simply give money away, and are expecting it back. If the federal government follows suit, they stand to make a lot of money from this, as they did during the last recession. The United States government has a rather good history of profiting from bailouts.
>If my tax money is being used to rescue a business, I want to either own a part of that business, or receive market-rate interest payments on it.
Contrary to popular belief, this did generally happen with the bank bailout:
But, the fact remains, due to interest, dividends and other revenue streams, the government has received more money back ($266.7 billion, according to the Treasury) than it handed out to banks under the bailout law ($245.2 billion). We rate this claim Mostly True.
The bank bailout lent money out at sweetheart, below-market rates.
So, no, I was not happy with it. The government should have only stepped in to deal with a lack of liquidity, by providing appropriately priced loans - not to give out discounts.
>Keeping money lying around does not spur the economy, which means fewer jobs, fewer products, and a stagnating economy.
This isn't true. If you personally "keep money lying around", that usually means putting it the bank, in a savings account, or maybe a CD. That money isn't doing nothing: it's being reinvested by the bank, earning them a return on their investment, and they're giving a little back to you in the form of interest. (Hopefully you're smart enough to put your main savings in a bank that actually gives you interest...)
It would be the same with any company. Saving money in low-risk investments would be the equivalent. That money is still being invested somewhere in the economy, just not in more volatile places.
Market expects dividends when a company has a penny of profit. The whole system is built with optimism at its core. if things go bad we expect governments to bail us out.
Assuming they could sock all $28B in profit into a rainy day fund... how can you make any reasonable claim about airline responsibility without also addressing their operating expenses? taxes? investments into remaining competitive? While I absolutely don't favor bailouts no matter whether they acted irresponsibly or responsibly... all I can tell from your position is that you think $28B is a big number and so beat 'em up on that without any further consideration.
Then, the solution could be very easy: Let those airlines borrow money that they will pay back with future profits. Or force investors to pay back a part of previous dividends. That way, nobody can "correctly criticize" them for keeping money around to survive the next rainy day.
Airlines couldn’t possibly prepare for this situation. It’s a black swan event which has no precedence. We are talking about more or less complete shut down of passenger flights, going from a time of prosperity and ever increasing demand which require fleet and personnel investment, into a complete halt of the industry (save for cargo).
This is like asking Google to prepare for operation of their datacenters for three months without electricity. It’s so unthinkable in a modern society that you simply can’t plan and set aside resources for that.
Airlines have experienced at least 3 “black swan” events in the last 2 decades (more if you wanna count extreme oil price increases).
Sure, they couldn’t have predicted this particular black swan event (although the idea that a pandemic couldn’t be resisted is kinda ridiculous considering people have been predicting one for long enough, to the point the previous US administration had set up a ton of infrastructure to prepare and plan for such a situation). But at this point it’s obvious airlines are gonna be affected by some black swan event or the other every 10 years or so.
Which event came close to this? 9/11 lasted days. The 2008 recession? Sure people slowed down their flights but it was not a complete closure. The stocks took a massive hit, but flights continued.
Judging by what's happening around the world, we are going to see flight volume dropping by 90%, for months.
The current crisis is going to be worse. I'd say one month bare minimum. We have a flight scheduled a month from now, probably getting cancelled. Ryanair has currently grounded its fleet.
What are the pros & cons of governments bailing out airlines?
The virus spread so fast thanks to airlines. I think more expensive plane tickets make sense: cut back some of the travel & emissions, make people look more into local holidays, make companies look more into video conferencing.
I admit this is just a shower thought, but airlines could really help in the current situation by transporting sick people across the world (e.g. from Italy to China) to even out hospital demand.
I highly recommend Matt Stoller's book 'Goliath' about the 100 year battle between US democracy and monopoly. Also his current newsletter 'big' which brings the book up to date for what is happening right now.
https://mattstoller.substack.com/p/how-to-structure-the-coro...
Forget 'rainy day' funds - the vast majority of modern businesses are financialized ATMs to pull value out of massively leveraged assets to distribute to a tiny percent of humanity.
Airlines are a good example of this. They'll get bailed out but hopefully there will be some guard rails put in place to prevent these funds going to pay for shareholder executive jets and yachts
All successful businesses provide value to succeed and survive, that's a given. The problem is that ever since the 80's junk bond era corrupt business people take over companies to load them with debt and extract financial assets.
And how does that supposedly work? Why do shareholders go along with it?
And what is stopping people from creating businesses that don't do that?
It sounds much like a conspiracy theory to me. The mysterious world of finance that everybody just know to be evil.
I don't doubt that shady things happen. But there has to be a better explanation than "evil businessmen extract value". And how is it "extracting", when people get actual services in return? If I buy an apple at a supermarket, has the supermarket extracted money from me?
Honestly, if you look at the FAANGs as well, possibly the most successful current businesses, 2 out of the 5 are just ad dependent. If there was a new revolutionary method of as delivery that supplanted mobile/web, then Google and Facebook would basically go the way of print media, but worse, because print media at least bought some time by being 50% ads and 50% subscriptions usually.
I don’t understand Amazon so I can’t really comment on it.
Netflix would probably do fine.
Apple would also likely do fine overall, but growth would reduce. It remains to be seen if the slowing growth would lead them to throw away what’s made them successful.
Oddly enough, all the European airlines that they mention are lowest of the bottom budget airlines.
EasyJet, RyanAir, TuiFly all are famous for offering ridiculous prices like a €20 Hamburg-Barcelona roundtrip and then trying to recoup those ticket losses by charging through the nose for hand luggage, in-flight food, and by being very pushy in selling their duty-free goods.
In my opinion, those airlines have always been operating at a loss while burning through investor money, so I am not surprised the least that they are still losing money.
I can't deny that they declared profits, but that doesn't necessary mean that they earned those in a sustainable way. And scraping the bottom of an already under-priced airline industry doesn't seem like a safe long-term bet to me.
It obviously is, even though these companies operate at minimum margins (which is why they go out of business so often). Nothing is sustainable during a global shock like the current one.
Tons of small airlines in europe have failed in the past decades, but not because they couldn't be profitable. they usually exploit every cost-cutting corner, so they fail easily when oil prices or other rules change. They seem to be designed for that
Setting aside for a moment the probability of extreme government intervention to maintain the status quo, what would the free market do about this? Letting the airlines fall apart because of a 6-month drop in sales seems like a senseless destruction of value. Would investors band together to keep the planes and pilots around until ticket sales came back? Is debt the answer? Bankruptcy?
The planes will be kept around, they won't vanish that quickly. They will be sold for cheap to the other/new airline, as it happened before with other collapses within the airline industry.
I strongly recommend you read a primer on corporate finance, but the gist is that creditors have first dibs on assets in a bankruptcy (and there may be multiple tiers of creditors), and shareholders usually get wiped out.
The tradeoff is that when times are good, shareholders can gain far more than creditors.
Now, if creditors really believe that the bad times will only be short-term, the credit markets may refinance the debt, or allow the airlines to issue more debt to cover the existing debt, allowing airlines to avoid bankruptcy, assuming that good times return in a timely fashion, as predicted / hoped.
If creditors believe that the bad times will last for the long-term, they can force bankruptcy, and then liquidate the assets in the hopes of recovering as much of their original investment as possible. As mentioned before, shareholders would get wiped out.
You said that this would be a "senseless destruction in value," but it's really not that simple. As an example, perhaps the proceeds from the sale of an airline's assets can be invested into promising treatments for COVID. Or perhaps the creditors have debts of their own to repay, and by liquidating the assets of an airline to cover their debts, they prevent a cascade of defaults that could take out an outsize portion of the economy. So it's not actually clear that the net effect on the economy would be a "senseless destruction in value."
There aren't a heckuva lot of dirigibles in the world. There aren't a heckuva lot of Viking style rowed ships, though they had a brilliant design compatible with both ocean travel and river travel.
Things change. New things often don't show up until the old thing has died.
The world existed for a long time before we had airlines. It won't cease to exist if many of them go out business.
I haven't flown in years. Lots of people would like to see people stop flying because it's hard on the environment.
This is potentially an opportunity to see something better rise from the ashes of a suddenly dying civilization that the world has long decried as unsustainable anyway.
I am ok with putting these airlines on life support until things get back to normal, but ONLY if airlines are required to get insurance or build a rainy day fund to handle similar future events. And only if shareholders and bondholders are not bailed out.
There are risks in this business and lenders and shareholders should have already taken that into account when they make their decisions. It's not the job of government to handle these risks.
We need to keep this industry going but also start to be more responsible about risk. And that will mean moderately higher ticket prices.
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[ 4.3 ms ] story [ 61.4 ms ] threadAny sane airline is going to try to file bankruptcy of some form now to protect themselves from new competitors that come around. There is bankruptcy provision for not paying debts for a few months while your reorganize. If you are in a tourism industry you should contact a lawyer and figure out the pros and cons of what you can do now to protect yourself in the future.
Why, then, can’t the airlines just issue bonds, like governments do in this situation? Large companies already do this to fulfill short-term dips (see https://en.m.wikipedia.org/wiki/Commercial_paper); this would just be the longer-term version. As long as the dip will predictably resolve, banks should be willing to secure the bonds.
Someone else with immense capital and assets would buy American Airlines (maybe Steve Ballmer or Larry Ellison would lean into that; Ellison likes airlines). Someone else would buy United, perhaps a major financial firm, private equity.
Capitalism is not ill suited for this crisis. This is not the first time we've seen this. We had Capitalism in 1860-1870 and 1918 as well. What people didn't like about this process in the past, is the way it often consolidates economic returns further, it generates huge winners and losers (in a way that seems to most to be particularly predatory or unfair, as an emotional take), and society often feels taken advantage of by people with vast well-stocked fortunes.
Don't confuse whether it would work with whether people like it or not. It works in fact and we've seen it multiple times in the past, we know exactly what happens: there are big winners (those that were prepared to take advantage) and big losers.
Many people took vast economic advantage of the Civil War, not least of all by buying their way out of serving (hiring legal substitutes). Rockefeller for example did well in commodities at this time, prior to the Standard Oil days.
Given that the rich will survive this with a dent to their fortunes, while everyone else is risking losing their house, jobs, health, and even lives, this isn’t a feeling, but the reality.
If the outcome of this pandemic is Capitalism devolving into greater wealth concentration and inequality, and the consequence of that concentration is ever increasing precarity and material harm for everyone else, it is terribly ill suited for this and all other crises.
I know it's fashionable to rail against The Man and watch your Reddit Gold™ roll in, but I really wish you'd press pause on that until becoming a smidge better educated on the subject.
Clearly throwing insults exposes a weak hand.
You have to be drunk on ideology to not see the impending cascading failures which will occur because the profit motive necessitates the coupling of systems and reduction of their ability to absorb unpredicted shocks. Like every system, of course capitalism will fail under certain circumstances, usually circumstances that it itself creates.
That's not true, spare capacity is spare capacity. Hospitals have a profit motive to keep spare capacity around because they want to be able to make money during surge conditions. Or, that's how it would work if capitalism was in charge. (I leave open the possibility for a lot of deviation from ideal theory in this case because the US medical system is actually a combination of the worst attributes of regulation and capitalism, committing to neither and shambling along with the most self-serving parts of each).
Also, the American health industry does not have the labor force to facilitate a pandemic. The American Medical Association has kept it this way for a reason. The whole industry depends on scarcity. Nurses are one exception where low pay is favored. They are the peon workers of the industry but, because nurses are paid so little, there is a very limited amount of them as well.
>Many people took vast economic advantage of the Civil War.
And the period immediately following restoration is known as The Guilded Age. It’s not exactly considered a high point for capitalism.
15 or so years ago China allowed ~500,000 people to die in order to build a hydroelectric dam (Three Gorges) for several other million.
If you consider that kind of machiavellianism a good thing, I suggest you move to China.
There's still definitely a communist party regime, for sure.
In a free society every free individual can think up a solution in a totilitan society on the other hand a smaller set of people will make the decision.
I like to think for myself and would prefer to let the question of a solution be handled by as many people as possible and based on reasoning and politely asking instead of appointing a group of technocrats to be worshipped as priests.
But the ruling class is nonetheless going to look after its own and leave you to the dogs. They have nothing but contempt for you. They don't give a shit what your opinion is or how this series of crises will disrupt your life, and the lives of those less fortunate and more precarious than yours.
It's an interesting data point on how much the stock market has declined so far.
Should be nice and easy to hit pollution targets when the state owns all the airlines again.
Let them die and only recreate a downsized aviation industry that's compatible with limiting climate change, with the medium-term goal to switch it to alternative fuels.
Synthetic jet fuel can be out of atmospheric carbon. (Chemically, it's jet fuel. Just synthesized instead of being pumped out of the ground.) It's more expensive than the out-of-the-ground stuff. But a lot of the price premium is currently due to a lack of economies of scale.
Airlines could go carbon neutral within a few years. Replacing the power plant is overkill.
Synthetic fuel is derived from hydrocarbons assembled from atmospheric C02. It can be powered by anything. Installed solar is irrelevant.
Anywhere. Nuclear. Wind. Waves. Initially, fossil fuels, because most energy comes from fossil fuels.
As would re-tooling (a) the economy to be less reliant on travel or (b) the entire aviation fleet to be e.g. battery-electric. Change is expensive. We're comparing costs, and when I've done that, synethetic fuel is the best near-term, i.e. within 50 years, solution.
> why would you use fossil fuels to extract CO2 out of the air
Big plants (can) burn much cleaner than jet engines. (Also, it's an interim step.)
>Big plants (can) burn much cleaner than jet engines. (Also, it's an interim step.)
Please show me how you extract more CO2 out of the air by burning fossil fuels than you release.
What's your energy source?
And once you've specified your energy source why are you using that source to make jet fuel instead of directly powering things like the electric grid?
Once the world is 85%+ on alternative energy we can worry about Jet airplanes.
Because we need planes. Or, to put it more simply, countries that fly will outperform those that don't.
Hydrocarbons are a great energy store. And we have a global fleet that burns them. For cars, we can go electric. But for weight-sensitive uses, it doesn't make sense to go battery.
There will always be Luddites who advocate a permanent quarantine. But if that's the only solution, we'll stick with the status quo. And the status quo is untenable.
Only once you are no longer using natural fuel (pumped oil) for ground stations anywhere in the world, only then does it make sense to start making synthetic fuel for airplanes.
Agreed.
> cheaper yet to buy it from the Saudis
Agreed. This would need to be a cost caused by regulation.
On a global scale we're seeing the results of living irresponsibly - individuals that have been spending all their earnings without putting anything away for a rainy day, and corporations too.
Of course, the government is going to bail out the enormous companies and leave the people to suffer through.
[1] https://www.cnbc.com/2019/06/02/airline-industry-cuts-profit...
The fact they were not shows they're terrible at sustaining a long-term successful business, and they deserve to fail. Only well run future-looking companies will survive something like this. i.e. all those companies in Japan that have been around for eons.
Most companies would be correctly criticized for hoarding cash. Companies can also be sued for keeping too much cash on hand, as for example, is the case with apple.
In practical terms, they didn’t hoard much and what they did was invested in financial instruments, so it was still increasing money velocity in the economy.
Which is what most people mean when they say "cash" in the context of company financials. As long as it's reasonably liquid, I consider it "cash". Investing in the company, on the other hand, is not liquid (e.g. hiring, buying planes, etc).
Sounds like there should be a new law to prevent this kind of thing. As the other poster pointed out, Japanese companies that have been around for eons don't seem to have this problem, so it's quite likely they keep lots of cash in savings to weather major downturns in business.
Japanese companies that have lasted a long time are family companies that don't have obligations to the public. The government mandates that public company boards act in best interest of the public shareholders, which means distributing their profits or using them to make money.
https://news.ycombinator.com/newsguidelines.html
In the US, half of all people having almost nothing to put away. Comparing this state of affairs to what corporations do with billion in profits is beyond parody.
Otherwise you're just setting the scene for large corporation bailouts every time there is a hiccup in the world.
I'd say any company that requires a bailout is incompetently run. Maybe that's too strong of a word, but by definition they're not "successfully" run.
So, what is important?
1. Maintaining a functional airline industry
2. Making sure the bondholders get back 100% of their loans?
3. Making sure shareholders don't lose their equity stake?
I would agree that #1 is important.
Companies typically do not keep a ton of money around because they're supposed to be distributing profits to the public (i.e., shareholders). Companies that do keep money around, like Apple, are correctly criticized for not re-investing the money into the economy (thus creating jobs and growth) and not returning it to investors (who would, with the dividend, presumably invest the money in another company that had a growth opportunity).
Like it or not, re-using profits is how we have achieved the modern way of life. Keeping money lying around does not spur the economy, which means fewer jobs, fewer products, and a stagnating economy.
If my tax money is being used to rescue a business, I want to either own a part of that business, or receive market-rate interest payments on it.
Contrary to popular belief, this did generally happen with the bank bailout:
But, the fact remains, due to interest, dividends and other revenue streams, the government has received more money back ($266.7 billion, according to the Treasury) than it handed out to banks under the bailout law ($245.2 billion). We rate this claim Mostly True.
https://www.politifact.com/factchecks/2012/oct/25/barack-oba...
So, no, I was not happy with it. The government should have only stepped in to deal with a lack of liquidity, by providing appropriately priced loans - not to give out discounts.
This isn't true. If you personally "keep money lying around", that usually means putting it the bank, in a savings account, or maybe a CD. That money isn't doing nothing: it's being reinvested by the bank, earning them a return on their investment, and they're giving a little back to you in the form of interest. (Hopefully you're smart enough to put your main savings in a bank that actually gives you interest...)
It would be the same with any company. Saving money in low-risk investments would be the equivalent. That money is still being invested somewhere in the economy, just not in more volatile places.
Assuming they could sock all $28B in profit into a rainy day fund... how can you make any reasonable claim about airline responsibility without also addressing their operating expenses? taxes? investments into remaining competitive? While I absolutely don't favor bailouts no matter whether they acted irresponsibly or responsibly... all I can tell from your position is that you think $28B is a big number and so beat 'em up on that without any further consideration.
This is like asking Google to prepare for operation of their datacenters for three months without electricity. It’s so unthinkable in a modern society that you simply can’t plan and set aside resources for that.
Sure, they couldn’t have predicted this particular black swan event (although the idea that a pandemic couldn’t be resisted is kinda ridiculous considering people have been predicting one for long enough, to the point the previous US administration had set up a ton of infrastructure to prepare and plan for such a situation). But at this point it’s obvious airlines are gonna be affected by some black swan event or the other every 10 years or so.
Judging by what's happening around the world, we are going to see flight volume dropping by 90%, for months.
https://en.m.wikipedia.org/wiki/2010_eruptions_of_Eyjafjalla...
The current crisis is going to be worse. I'd say one month bare minimum. We have a flight scheduled a month from now, probably getting cancelled. Ryanair has currently grounded its fleet.
The virus spread so fast thanks to airlines. I think more expensive plane tickets make sense: cut back some of the travel & emissions, make people look more into local holidays, make companies look more into video conferencing.
So basically all airlines in the world would have to save 100% of profit for 5 years to survive a force major type of event?
This is simply not possible in any line business.
Like an airline: people can hop on planes and go to places, to do business or meet people.
You can't do that with an ATM. ATMs don't fly.
And what is stopping people from creating businesses that don't do that?
It sounds much like a conspiracy theory to me. The mysterious world of finance that everybody just know to be evil.
I don't doubt that shady things happen. But there has to be a better explanation than "evil businessmen extract value". And how is it "extracting", when people get actual services in return? If I buy an apple at a supermarket, has the supermarket extracted money from me?
I don’t understand Amazon so I can’t really comment on it.
Netflix would probably do fine.
Apple would also likely do fine overall, but growth would reduce. It remains to be seen if the slowing growth would lead them to throw away what’s made them successful.
EasyJet, RyanAir, TuiFly all are famous for offering ridiculous prices like a €20 Hamburg-Barcelona roundtrip and then trying to recoup those ticket losses by charging through the nose for hand luggage, in-flight food, and by being very pushy in selling their duty-free goods.
In my opinion, those airlines have always been operating at a loss while burning through investor money, so I am not surprised the least that they are still losing money.
https://www.statista.com/statistics/756093/ryanair-net-profi...
Edit: As does EasyJet
http://corporate.easyjet.com/investors/results-centre
It obviously is, even though these companies operate at minimum margins (which is why they go out of business so often). Nothing is sustainable during a global shock like the current one.
Theres just less room for error.
I strongly recommend you read a primer on corporate finance, but the gist is that creditors have first dibs on assets in a bankruptcy (and there may be multiple tiers of creditors), and shareholders usually get wiped out.
The tradeoff is that when times are good, shareholders can gain far more than creditors.
Now, if creditors really believe that the bad times will only be short-term, the credit markets may refinance the debt, or allow the airlines to issue more debt to cover the existing debt, allowing airlines to avoid bankruptcy, assuming that good times return in a timely fashion, as predicted / hoped.
If creditors believe that the bad times will last for the long-term, they can force bankruptcy, and then liquidate the assets in the hopes of recovering as much of their original investment as possible. As mentioned before, shareholders would get wiped out.
You said that this would be a "senseless destruction in value," but it's really not that simple. As an example, perhaps the proceeds from the sale of an airline's assets can be invested into promising treatments for COVID. Or perhaps the creditors have debts of their own to repay, and by liquidating the assets of an airline to cover their debts, they prevent a cascade of defaults that could take out an outsize portion of the economy. So it's not actually clear that the net effect on the economy would be a "senseless destruction in value."
Things change. New things often don't show up until the old thing has died.
The world existed for a long time before we had airlines. It won't cease to exist if many of them go out business.
I haven't flown in years. Lots of people would like to see people stop flying because it's hard on the environment.
This is potentially an opportunity to see something better rise from the ashes of a suddenly dying civilization that the world has long decried as unsustainable anyway.
airlines do bankrupt very often
https://simpleflying.com/bankrupt-airlines-2019/
They are hardly too big to fail (the ones who consider themselves essential can increase fees)
There are risks in this business and lenders and shareholders should have already taken that into account when they make their decisions. It's not the job of government to handle these risks.
We need to keep this industry going but also start to be more responsible about risk. And that will mean moderately higher ticket prices.