Ask a Travel Nerd: Did the Airline Bailout Help Consumers?

Travelers face higher costs and worse service in post-bailout air travel, despite funding the rescue.
Jul 27, 2022
Did the Airline Bailout Help Consumers?

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When the 2008 financial crisis roiled banks, the federal government jumped in with an enormous bailout effort. Two years later, Congress slapped the industry with a sweeping set of reforms and important consumer protections.

That made sense. The government is by the people and for the people, after all. So bailing out banks meant that everyday people (i.e., consumers) were in a strong position to demand better treatment.

Well, it’s been nearly two years since U.S. airlines received more than $50 billion in federal aid as part of the pandemic bailout efforts. So, air travelers should be receiving those consumer protections any day now.

Right?

Staffing shenanigans

At least $25 billion of the airline bailout covered “payroll protection” for passenger air carriers. Basically, they were given money to keep employees on payroll while the pandemic cratered demand.

Given this, why is the current air travel chaos being pegged on staffing shortages? Shouldn’t airlines have retained all those employees with the generous government bailout?

Well, the airlines pulled a tricky move during the demand doldrums of 2020: They offered senior staff generous retirement packages. Technically, the airlines weren’t furloughing or laying these employees off, so they were able to keep the bailout money while cutting expensive staffing costs at the same time.

This was likely a deft move from a business perspective, but it has resulted in a full-scale catastrophe for air passengers. Staffing shortages have caused widespread delays, cancellations and lost baggage, not to mention skyrocketing airfare prices due to constrained supply.

In short, we the people are paying more for airfare and getting worse service because we bailed out the airlines.

Huh?

Spirit in the skies

Many consumer protections came out of the 2008 financial crisis, including legislation that aimed to improve transparency and fairness on credit card fees. These fees had become increasingly convoluted and difficult to parse, so Congress forced the banks’ hands, requiring that they tell people what they’re paying and why.

What about airlines? Following the strategy of budget air carriers, major U.S. airlines have spent more than the last decade transforming the airfare checkout process into a convoluted gamut of fees.

From charging to upgrade from “basic economy” to “main cabin,” to charging extra for middle seats at the back of the plane, airlines have maintained low base fares to compete in search results while tacking on more fees.

This “drip pricing” technique leads to poor consumer decisions, according to a 2020 study in the journal Marketing Science. When fees are slowly revealed in this way, consumers end up paying more, even when they are given the option to switch to a lower-cost option before checking out. Basically, the experience of navigating these fees is so cumbersome that consumers give up on comparison shopping — and eat higher costs in the process.

At a time when the Biden administration is looking to dampen the impact of inflation, manipulative airfare fees should be at the top of the priority list. Yet no legislation or executive action to curb this excess is in the offing.

A weird double standard

According to The Wall Street Journal, up to 30% of dry cleaning businesses, many of them family-owned, have shut down in the last two years. Nearly 100,000 restaurants permanently closed between March 1 and Aug. 31, 2020, according to a study by Yelp.

Yet the airline business is, at least on paper, humming along. Rather than going under, Spirit Airlines — which charges consumers the most in fees, on average — is being courted by JetBlue Airways and Frontier Airlines in an acquisition deal that feels more like a reality dating show than a business transaction.

And airline executive salaries remain healthy, to say the least. Delta Air Lines CEO Ed Bastion pocketed $12.4 million in 2021 before issuing a public apology in June of this year about how poorly the company’s operations are performing.

For some reason, airlines received a special share of bailout funds but no scrutiny or regulation that could have led to better outcomes for flyers this year.

The bottom line

Every consumer industry requires checks and balances. Some of this can come in the form of consumer reviews and industrywide ratings, but those alone aren't enough. When consumers pay taxes that are used to bail out an entire industry, it’s reasonable to expect that some protections and safeguards will come along for the ride.

This time around, that logic doesn’t apply to the airline industry, which gratefully absorbed taxpayer money while nudging much-needed pilots into retirement and developing ever-more-manipulative fee structures. Summer flyers who have been tagged with these fees and are experiencing flight disruptions caused by staffing shortages should be outraged.

Right?


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