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4. Increase pay/benefits to your rank and file employees for helping you get so much cash

5. Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund

6. Focus on improving world impact through starting philanthropic activities

> Increase pay/benefits to your rank and file employees for helping you get so much cash

The auto industry did this through high wages and very large pension plans, and got absolutely destroyed in '08 and also demonized by taxpayers for creating an undeserving "welfare class" of autoworkers that was too expensive to maintain.

> Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund

What if you feel like any further investment yields negative return? Berkshire Hathaway has been sitting on cash for years because they felt that they couldn't put their money into any constituent businesses and generate the right return. Why purposefully throw money into a black hole?

> The auto industry did this through high wages and very large pension plans, and got absolutely destroyed in '08 and also demonized by taxpayers for creating an undeserving "welfare class" of autoworkers that was too expensive to maintain.

I'm not sure I'd be making long term business decisions based on how reactionary people are to things after a crisis. I also don't think you're going to hear the argument that the reason the auto industry failed was because they were paying their rank and file workers too much...

No one said use it all either, this is a balancing act, just as using up most of your free cash to buy stock back probably isn't a good long term idea either.

> What if you feel like any further investment yields negative return? Why purposefully throw money into a black hole?

First, yielding negative return and throwing into a black hole are two very different things. A negative return can either create more jobs for people, perform a social good, or help in some other way beyond raw return. Businesses of the scale of having billions in cash siting around are not going to run out of ways to improve their business efficiency.

Option 4 is clearly a good one, more companies should pay dividends to employees in addition to (or instead of) shareholders. Employees have a stake in the company and the usual way of doing this (by giving employees stock so that they get the same benefits as shareholders do) doesn't align risks well. These are called bonuses, and yeah, big companies should pay more bonuses when they are performing well. I'm all for any company that does that and any policy that incentivizes it.

But I'm a lot less convinced by your other two points.

I'm sure the airlines did keep enough cash for an emergency fund, but every emergency fund comes with a model of what an emergency looks like, and for airlines what makes sense to cover is things like oil price increases or a recession that impacts demand for travel by a few percent, not an event like this that results in a 95% decline in demand due to government mandates; we don't want every large corporation hoarding a hundred billion dollars in cash, we want that cash available to invest elsewhere.

And I don't really want corporations to be major leaders of philanthropic activities. Why them? Who are they accountable to? Why should I expect them to support good causes? I would rather see that money in the pockets of individuals who can decide what philanthropy to support, or in the pockets of a government whose philanthropy is accountable to voters.

The (flawed, but not entirely) idea of buybacks and dividends is that they also achieve the function of getting cash out of the hands of big corporation managers. When that cash ends up just sitting in another bank account of a rich person (or in a yacht) that is a shame, but it is its own problem for which there should be different solutions, but when that cash ends up flowing into other investments, that is much better than it sitting in the bank account of an already-huge corporation or being funneled into doomed business lines outside that company's area of expertise.

> I'm sure the airlines did keep enough cash for an emergency fund, but every emergency fund comes with a model of what an emergency looks like, and for airlines what makes sense to cover is things like oil price increases or a recession that impacts demand for travel by a few percent, not an event like this that results in a 95% decline in demand due to government mandates; we don't want every large corporation hoarding a hundred billion dollars in cash, we want that cash available to invest elsewhere.

I would agree that an emergency fund likely would have still run out in this scenario, but I don't think that invalidates the idea of investing back in the business does it? It's just more that the caveat is debatable / easier said than done.

> And I don't really want corporations to be major leaders of philanthropic activities. Why them? Who are they accountable to? Why should I expect them to support good causes? I would rather see that money in the pockets of individuals who can decide what philanthropy to support, or in the pockets of a government whose philanthropy is accountable to voters.

Honestly fair point, I agree generally with who is allocating. I guess the question is how do you execute getting it in the hands of individuals or government for philanthropic purposes though? I wouldn't actually mind seeing a system for that where you can pay into a government controlled philanthropy fund that voters help allocate on ballots during voting but that type of system doesn't exist now, and getting it to individuals is typically limited to your employees which then just turns this into option 4 but with the likelihood that they money goes into other businesses instead of the original intended purpose.

This whole thing could just be a poll on the website or a matching campaign that customers engage with where they choose from a wide variety of sources. That's a major philanthropic activity by the business but then not allocated by the business itself, assuming the options are sufficiently ranging.

I was using "philanthropy" in a broad sense. A large portion of what the government does is akin to philanthropy. So I just meant taxation.

And yes, I think it just boils down to option 4: more money to individuals through employee bonuses. I trust the individuals more to support good causes than a corporation with its own agenda.

But note that I also think dividends are a good thing too, for the same reason I think bonuses are a good thing. I think it is generally better for most corporations to pass their cash onto other stakeholders. I wish it was more balanced toward employees rather than shareholders, but I think both are usually better than the corporation holding onto it themselves.

There's also option 4:

- Increase worker pay and benefits

And Option 5 - Invest in research and development: better engines? Lighter materials? Better interior arrangements so that flyers can feel comfortable while you still turn a profit? I get that airlines don't directly create these things, but they could throw their excess cash into R&D contracts for manufacturers...

You can really only increase base compensation when you have the cash and you expect to have that cash down the road as well. Employees are not happy with incomes that are as cyclical as business income is. A bonus could be a good option.

Traditionally you also have dividends as well. Stock buybacks are basically tax avoidance.

Many companies still pay dividends as well. But, yes, functionally both dividends and stock buybacks return money to shareholders, i.e. the owners of the company. However, as you say, in the US the tax code tends to favor capital gains over dividends.

Yeah what I keep not being sure of with this whole debate is: are people mad about companies using buybacks instead of dividends because of the tax avoidance angle, or are they mad at the entire idea of companies giving back money to shareholders either way? It seems like buybacks are the boogeyman, but that an argument like "if they had kept their $45B over the past few years, they wouldn't need $50B now" applies just as well to dividends.

People can be mad about or rationally opposed to more than one thing at a time.

Sure, maybe it's both. What I'm saying is that it seems muddled to me in these articles, I can't quite tell which thing is actually the problem, or whether it is both.

And as has been said on other threads about this topic - were the individual airlines to have saved that money (taking the hit on interest rates before deploying it now), the amounts we're talking about would barely cover a few months of total operations per airline.

Am not an apologist by any stretch, but the narrative is "they should have created a black swan fund instead of share buybacks". But they'd have been skewered for years by the trade press for keeping billions of dollars in sub-optimal immediate cash form in order to buy a little extra time.

How about being prepared so that you don't need to be bailed out by the federal government?

How about spending that money to provide better service?

It's not a revisionist history that virtually everyone complains about the declining level of service and increased fees.

Both the declining level of service and increased fees are a byproduct of consumer preference: namely they choose flights based on sticker price.

You could also look at it the other way (the correct way):

Service hasn't declined in airlines. If you spend the same on a ticket today as you would have had to in the 1970s to fly, you receive better service. That's because you'd have to be flying first class.

We just decided over time that we were only willing to pay at most $200 to fly across the country round trip, yet still romanticized the idea of having a great experience while doing so.

Keep in mind that of the $200 ticket price, about 30% usually goes to fees and taxes; not airlines. You should be grateful a system so robust exists. One that can take you across the country for such an incredibly low price, given that your only alternative is to drive across the country or take a train; both taking an order of magnitude more time and cost an order of magnitude more.

4. Dividends

"Keep it in cash" isn't looking like such a bad idea right now.

Having just finished "Black Swan" I am convinced companies need to start thinking that these "once in a lifetime" events are actually pretty common. Having cash on hand to weather a storm should be mandated by shareholders.

Not to mention the airline industry in particular routinely has adverse events that affect it. Just to run down a list of random things airline execs should be considering as "normal" risks they need to plan some buffer for, all of which have caused significantly impactful events on a regular basis for the industry, even to the point of causing some airlines to go bankrupt and/or be bought out by competitors over time:

* Government regulation impacts

* Union strikes

* Aircraft groundings due to faulty (or less-long-lived than anticipated) parts

* Ticket search companies undercutting their profits

* Oil (and thus fuel, one of their main costs) price surges

* Wars and conflicts that decrease travel demand or cause large unsafe-to-fly zones over the world.

* Volcano eruptions that fill regions of the globe's sky with engine-killing volcanic dust.

* Terrorism (the reduction in passenger demand in the wake, groundings while implementing new safeguards, related lawsuits in the aftermath, etc)

* Now-obviously: Pandemics (but even smaller epidemics have shown effects several times in the past couple of decades!)

Sure, but that still wasn't the best option.

1. We had the sharpest market drop in history. Models could predict this, but while this drop is say a 1 in 30 year event across all industries, this drop for certain sectors (like airlines) is more of a 1 in 100 year event. If companies all planned all the time for once in a century events, global growth would be much slower.

2. Most companies in most industries are still better for having done share buybacks. We're only back at 2017 stock levels. They've been buying back since 2010. The best return most companies got for their cash was doing this, and I'm not sure that's changed with this downturn. Most companies will be back to normal pricing in a year's time from now anyway, and their share buybacks will still have been as brilliant of a decision as ever.

United went bankrupt in 2002. Air Canada, 2003. US Airways, 2004. Northwest and Delta in 2005. American in 2011. This pandemic may be a once-in-a-century event, but "we're out of money" is not, especially for airlines.

If that is the lesson that businesses learn from this, the recession after this will last a lot longer than it needs to, as companies hoard more emergency cash than they need, instead of it flowing through the rest of the economy. A better solution is to cover higher likelihood emergencies and for governments to step in (as they are doing) for very rare emergencies like this one.

> 3. Buy back your own stock, which gives back to shareholders.

You mean props up the share price so board members can hoard more wealth?

4. Pay a dividend

For the line of thought in articles like these, there's no difference if airlines had spend $45B on dividend payouts in the past four years rather than on buybacks.

No, because dividends don't benefit from compounding stock prices.

If you buy back your stock from 20 -> 80 a share vs. having paid out the same amount in dividends, the share buybacks yield a much greater income than dividends, which once paid no longer compound unless individual investors re-invest them.

Buy pandemic insurance to protect your company in case of downturn.

4. Invest it in your core biz.

5. Invest it in research

6. Buy other companies to extend your core biz.

6a. Buy a company to get into a new line of business (Comcast/NBC, Yammer/LinkedIn/GitHub), a transformational divestment followed by rebirth (IBM, Nokia)

6b. Buy up and coming evolutionary competitors before your way is obsoleted by their way. (Red Hat, Instagram, WhatsApp, all the SD-WAN companies getting swallowed.)

6c. Buy competitor and dismantle it to consolidate and reduce competition.