Government Subsidies Are Causing American Airlines To Cancel Hundreds Of Flights

The airline industry is facing a historic shortage of pilots as a result of the recession. U.S. airlines have been forced to cancel hundreds of flights because there are not enough pilots available to fly the planes. American Airlines recently announced that it will cancel 300 flights on its schedule for this week alone. American’s senior vice president of operations, Capt. John M. Lehner, blamed the shortage of pilots on the government’s tax-exempt airline subsidies (airline subsidies are discussed in my post “How Do Airline Industry Subsidies Create a Problem?”).

The FAA has been having a pretty rough time of it lately. First, it was caught allowing a dangerous company to continue flying even after it was caught trying to smuggle drugs. Then, it was caught letting a plane crash because the pilot was asleep at the switch. And now, it’s caught allowing an airline to cancel hundreds of flights, leading to a massive public outcry.

I had written several times in the past about the importance of government subsidies in the airline business. As a result, I was quite shocked to read an article on the website of American Airlines (the text is no longer available), in which management confessed the cost of government subsidies was such that they were about to cancel 300 flights a day. The subject is a hot one at the moment, and it’s important to have an objective point of view when discussing it.

Government subsidies force American Airlines to cut hundreds of flights

Gary Leff 25. June 2023

During the pandemic, U.S. airlines collected $79 billion from taxpayers, not including taxes on suspended tickets and money that went indirectly to airports and contractors. Their idea was that they would be ready to serve the public when travel demand picked up.

American Airlines, like many others, didn’t really prepare their staff for the flight. Because they don’t have enough overqualified pilots, they have not been able to operate all the flights they have been selling to customers and have been canceling hundreds of flights a day for the past week, and are actively canceling more flights in July to make up for it.

The latest round of grants – PSP 3, funds to help cover salary costs from April 2023 to September 2023 – began after American Airlines broke even in March. Moreover, almost all of the money went directly to the airline’s budget, as only about 10% of it would have been needed to pay employees who might have been laid off.

And it turns out that the current round of airline wage subsidies is actually the reason American Airlines has overshot its schedule and is now having to cancel flights. As CEO Doug Parker explained to staff on June 15, shortly before the operational collapse,

It’s an incredibly strange environment right now, where it really makes sense to fly jumbo jets from Miami to Los Angeles. By the way, this only makes sense because our planes get paid and our people get paid thanks to the CARES (sic) Act.

So a lot of what we do is fly planes, and the only alternative is to idle the planes, idle the people and not fly them, and it doesn’t take much revenue to cover the fuel costs. This is not a viable program for any of the airlines we serve. But now it makes sense.

The planes have already been paid or have yet to be paid, and since they have to pay all employees whether they fly or not, the only extra cost they really incur when they add a flight is the fuel.

So if they can add a flight and bring in enough passengers to more than cover the fuel costs, they have an incentive to add a flight because it brings in more revenue. Because of the subsidies they must pay to all their current employees, they have exceeded the airline’sschedule. And that’s why the flights were cancelled.

Lake View from the Wing

American Airlines has long been the biggest US carrier, with a history of government subsidized air travel. Well, it looks like American is now going to start paying for that privilege. The company recently announced that it will start phasing out its subsidies, which means that each flight that’s subsidized will be paid for by the company itself. While this is great news for the airline, it’s bad news for passengers who rely on the company to actually provide the service to fly.. Read more about third airline bailout and let us know what you think.

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