Doug Parker, CEO of American Airlines, thinks that a six-month extension of the payroll support program that the carrier has been lobbying heavily for would be the last necessary round of government support. He believes that, without an extension of government support, the airline industry will not have the critical infrastructure in place to handle a rise in demand.
A six-month extension would be the last it needs
Speaking on the airline’s third-quarter earnings call, Doug Parker framed the extension of the Payroll Support Program (PSP) as necessary to keep critical infrastructure in place to support an economic recovery. The PSP program, first instituted back in March, required airlines to continue to maintain minimum service as mandated by the Department of Transportation (DOT).
As the crisis continued to unfold and airlines faced uncertain prospects on a recovery, Doug Parker and some of his colleagues lobbied hard for an extension of payroll support. The PSP is separate from a government loan program American recently closed on.
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When prompted, however, in the airline’s third-quarter earnings call about whether the industry would just need the payroll support again in six months, Doug Parker stated the following:
“I don’t think so. I happen to believe we’re seeing now, even in this environment, gradual return of revenues. We expect that to continue. I think six months from now you’ll see a better environment than we have today, irrespective of what may or may not happen as relates to pandemic itself because people are getting more and more comfortable with travel, cities are opening up, and business is returning somewhat. From an airline cyclicality perspective, we’ll be heading into the summer which always has higher demand. Our view, anyways, is that six months of PSP extension would be the last PSP extension you would need to keep critical infrastructure in place.”
Where Doug Parker is right
Doug Parker has been in the industry for a while and he knows a few things, for sure. First and foremost, American Airlines has made it clear that smaller cities where there might not be as much demand would be on the chopping block if demand does not continue to rise.
The lack of those flights is what Doug Parker is framing as a lack of critical infrastructure to support an economic rebound. Even without demand, American Airlines continued to serve small cities it did not before.
In addition, payroll support helps preserve jobs. No one in the industry is to blame for the global crisis that has decimated travel demand, obliterated airline schedules, and turned the industry upside down. However, airline employees faced some of the brunt of the crisis with furloughs, pay cuts, and a push for voluntary early retirements. Payroll support would help American bring some, if not most, of those people back.
The outlook is still uncertain
Even with more funding going out to airlines, it is not certain that there will be enough demand or bookings to sustain a full payroll at American Airlines. By spring or summer 2021, most people are hopeful that more countries will open up for American tourists and people will be more comfortable traveling.
That, however, is no guarantee. The recovery is showing itself to be choppy. And, while there has been some good news over the last few weeks and most airlines are expecting a strong Thanksgiving and December holiday season in the US, whether that is the precursor to more bookings for summer 2021 is anyone’s best guess.
But, Doug Parker thinks American would be able to take it from there after getting a six-month extension of payroll support thanks to aggressive cost-cutting measures like fleet simplification and a potential for increased revenue from bnookings. However, even a six-month extension is not anywhere near guaranteed.
Do you agree with Doug Parker? Let us know in the comments!