Travel Chaos Could Get Worse in October When Airline Stock Buybacks Resume

• Travel chaos abounds this summer as passengers grapple with delays, cancellations and lost luggage.
• Sara Nelson, international president of the Association of Flight Attendants, warns things could get worse.
• In the fall, airlines can start buying their own stock again – potentially leading to higher fees and fewer staff.

If you’ve ever thought about boarding a plane this summer, you’ve probably heard the tales of the travel chaos.

Passengers are hit delays, cancellationsand transfers — it forced some people to spend the night at the airport, Sleep on chairs and boxes.

Sara Nelson, international president of the Association of Flight Attendants, warns there could be more chaos this fall when airlines are allowed back to buy their own shares.

Because in September, a ban on so-called share or share buybacks expires for the industry. The ban was originally implemented as a condition of Federal economic stimulus package that helped save airlines during the outbreak of the pandemic. Nelson warns that the end of the ban could mean higher fees, less service, fewer staff and “more chaos” in operations.

In a stock buyback, “a company chooses to buy its own stock from shareholders and it will take those stocks off the market entirely,” Petra Sinagl, an assistant professor of finance at the University of Iowa, told Insider. That gives shareholders money and reduces the number of outstanding shares. “This will, for example, increase reported earnings per share, at least temporarily, because you’re basically dividing the same earnings number by a smaller number of shares outstanding,” Sinagl said.

Share buybacks have been particularly prevalent in the airline industry over the past decade. As an insider previously reported, airlines like American and Delta poured billions into share buybacks in the years leading up to the pandemic. For example, in 2019, American spent $12.6 billion to pay its employees. But from 2013 to 2019, they spent $12.9 billion on share buybacks.

“There was so much pressure on airlines to announce these huge share buybacks as they were trying to encourage people to reinvest in airlines,” Nelson said. “But a large portion of the profits went into share 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.”

Tom Brenner-Pool/Getty Images

When the pandemic struck, there was outrage at an industry that had sunk billions into itself and was demanding billions of dollars in bailout funds. March 2020 e.g. Bloomberg found that the country’s biggest airlines spent 96% of their cash flow on buybacks over the past decade.

“Part of what we included in the COVID relief plan was a ban on share buybacks,” Nelson said. This measure met with support democrats – and then President Donald Trump.

“We originally proposed seven years or permanent, and ultimately it was reduced to one year,” Nelson said of the ban. “But it was during COVID relief and a year after, so that’s going to end on September 30 of this year.”

Economic research has determined that buybacks are possible improve the liquidity of companiesand Make prices more efficient, to Sinagl. But it’s also true that companies that have missed their forecast earnings are more likely to participate in share buybacks — and when that happens, it’s “job and investment cuts.”

Airlines, particularly Delta, indicated in earnings calls that they were preparing to resume buybacks immediately, Nelson said.

“There is nothing we can do about the CARES Act restriction at this time,” Delta CEO Ed Bastian said on the company’s conference call. He added: “But what we are talking about in the long term is that we have a responsibility to all constituencies, to our customers, to our employees and most importantly to our owners.”

Nelson said it was “incredibly irresponsible” for airlines to consider investing those early pandemic profits in share buybacks. For consumers, this likely means higher fees, less service, and fewer staff.

“It’s important for work, but it’s important for anyone who flies,” Nelson said. Nelson said people should at least demand that the ban continue until the chaos is under control and years of union negotiations are finally settled.

“Congress should look at what it looks like when a company is actually focused on the business,” she said, “and not have constant pressure from investors to siphon off those gains for short-term gains for investors and long-term damage to the company — more directly.” Harm to the people on the front lines and the customers trying to get a service.