- Travel chaos abounds this summer as passengers face delays, cancellations and lost luggage.
- Sara Nelson, international president of the Flight Attendants Association, warns that it could get even worse.
- In the autumn, airlines may start buying back their own shares – potentially leading to higher fares and fewer staff.
If you’ve been thinking about getting on a plane this summer, you’ve probably heard tales of travel chaos.
Passengers are being hit with delays, cancellations and overbookings – some people have been forced to spend the night at the airport, sleeping on chairs and boxes.
Sara Nelson, international president of the Association of Flight Attendants, warns of more chaos to come this fall when airlines are allowed to buy back their shares.
That’s because a ban on what’s called share or share buybacks expires for the industry in September. The ban was originally implemented as a condition of the federal stimulus package that helped bail out airlines during the start of the pandemic. Nelson warns that the end of the ban could mean increased fares, less service, fewer staff and “more chaos” in the operation.
In a share buyback, “a company will choose to buy back its own shares from shareholders and take those shares completely off the market,” Petra Sinagl, an assistant professor of finance at the University of Iowa, told Insider. This gives money to shareholders and reduces the number of shares outstanding. “This will at least temporarily increase, for example, reported earnings per share, because you’re essentially sharing the same number of earnings with a lower number of shares outstanding,” Sinagl said.
Buybacks have been particularly prevalent in the airline industry over the past ten years or so. As The Insider previously reported, airlines like American and Delta poured billions into 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 big stock buybacks because they were trying to encourage people to invest back into the airlines,” Nelson said. “But a large portion of the profits went to 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 for an industry that had poured billions into itself seeking 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 flow on acquisitions.
“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 had originally suggested seven years or forever, and in the end it was reduced to one year,” Nelson said of the ban. “But it was during the COVID relief and the year after, so it will end on September 30 of this year.”
Economic research finds that takeovers can improve firms’ liquidity and make prices more efficient, according to Sinagl. But it’s also true that companies that miss their projected earnings are more likely to engage in share buybacks — and, when that happens, it’s associated with “reduced employment and investment.”
Airlines, particularly Delta, were hinting in earnings calls that they were preparing to resume acquisitions immediately, according to Nelson.
“There is nothing we can do at this time regarding the CARES Act restriction,” said Ed Bastian, Delta’s CEO, on the company’s earnings call. He added: “But we talk about the 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’s “incredibly irresponsible” for airlines to consider putting those early pandemic profits into stock buybacks. For consumers, she said it will likely mean higher fees, less service and fewer staff.
“It matters for the job, but it matters 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 union negotiations that have been stalled for years are finally resolved.
“Congress needs to look at what it looks like when you actually have a business-focused company,” she said, “and not have constant pressure from investors to take away those profits for short-term benefit to investors and long-term harm. So to the company – direct harm to the people on the front line and the customers who are trying to get a service.”