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Comment by grecy | Hacker News Reader

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.

[1] https://www.cnbc.com/2019/06/02/airline-industry-cuts-profit...

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$28B in profits over what operating expenses?

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.

> 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.

So, would you still say that those businesses that took cash to the side for eventualities are “correctly criticized” now?

I'm fine with this, as long as bailouts for companies that redistribute money to shareholders come with haircuts for the shareholders.

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.

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.

https://www.politifact.com/factchecks/2012/oct/25/barack-oba...

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.

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 Eyjafjallajökull volcano in Iceland. Two weeks of air disruptions.

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.

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.

Aren’t airline profits small with respect to their operating costs? No one really thinks of an airline as a good business to make money on these days.

Think of them more like a loyalty program that happens to fly planes.

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.

I think the world would be better off if the incompetently run airlines went bankrupt, and a few better run ones took their place.

Otherwise you're just setting the scene for large corporation bailouts every time there is a hiccup in the world.

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?

> Who says they’re incompetently run?

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.

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.

You can save the industry without bailing out the stock holders and bond holders, as those are three different things.

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.

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.

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.

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.

The financial burden for airlines is huge, the estimated short fall in revenue is by $115 B of global airline revenue in 2020.

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.

> 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.

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.

> invested in financial instruments

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.

Please don't.

https://news.ycombinator.com/newsguidelines.html

How many years of operating expenses should a business keep on hand in your view?

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