Grounded For Life: Airlines Going Bust

Hey JessTravellers

Take this one with a pinch of salt because I have a major bias here, I've worked in marketing for travel companies for some time and I hate flying. It's honestly the worst thing I can think of doing. I struggle to keep my wits about me on a long haul flight and need every ounce of sanity to keep from losing my mind and being forcefully detained.

I'm by no means the biggest guy but I do feel like we're treated inhumanly and like animals as airlines literally calculate space requirements to drive more profits at the expense of the consumer. They have had access to free money for years as well as bailouts in the past only to not act responsibly and milk the consumer.

While many people will lose their jobs and money, myself included I can't help but think that this could be a good thing if people learn their lessons.

Profits over people

As international trade grew air travel has become less of a luxury option and more of a public utility over the years. The game was all about volume and getting to stuff planes with as many first-class bums and economy class bums as possible.

If done correctly these small margins add up to massive profits. Airlines, as well as manufactures, were enjoying over 10 years of steady demand until this year and instead of building rainy day funds, they opted for stock buybacks.

The big U.S. airlines spent more than 95% of their free cash flow buying back their own shares as well as other airlines following the same path. Now they're looking for bailouts, which I do not think is the right thing to-do, rewarding mal investment.

How a stock buyback works

Essentially top officials in these airlines issue themselves options to buy the stock at next to nothing. Then they use profits to buys back the company shares from the marketplace with its accumulated cash.

The repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced thus artificially improving the price without an increase in production and making those new option given shareholders stinking rich on paper.

Image source: - metro.co.uk

Success in failure

But we can't let people lose jobs over the mismanagement of the top guys, no we can't and shouldn't and we won't. Airlines may go bust if not bailed out yes, but the assets will need to be used. Banks do not want to sit with assets they can't use and they will be willing to sell it cheap to anyone with the skill and capital to take it on.

Airlines will then be rebuilt or expanded with healthy balance sheets and as income grows due to demand to return, employees will be snapped up as the market deems necessary and we build healthier supply and demand relationships and not living on leverage.

It's going to be painful, it's going to be ugly, but to me, its the best way forward for this particularly hard-hit industry. Ask yourself, If a business in an industry can't handle a few months disruption, was it meant to be running and propped up?

Sources

• metro.co.uk
• cnn.com
• theguardian.com

Have your say

What do you good people of steem think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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