Travel chaos could worsen after airline stock buyback halts in October

• Travel chaos abounds this winter as passengers deal with delays, cancellations and lost luggage.
• Sarah Nelson, president of the International Association of Flight Attendants, warned it could be worse.
• In the fall, airlines may start buying back their own shares — which could lead to higher payouts and fewer workers.

If you’ve been thinking about getting on a plane this summer, you’ve probably heard tales of travel chaos.

Passengers are being hit with delays, cancellations and rebookings – forcing some people to spend the night at airports, sleeping on chairs and boxes.

Sarah Nelson, global president of the Flight Attendants Association, warned that more chaos could follow when airlines are allowed to buy back their own shares this fall.

Because the ban on so-called stock or stock buybacks ends for the industry in September. The ban was originally implemented as a prelude to a federal stimulus package that helped bail out airlines during the pandemic. Nelson warned that the end of the ban could mean increased fees, fewer services, fewer staff and “more chaos” in the operation.

Petra Sinagle, an assistant professor of finance at the University of Iowa, told Insider that in a stock buyback, “a company chooses to buy back its own shares from shareholders and takes those shares completely off the market.” This gives cash to shareholders, and reduces the number of shares outstanding. “This will at least temporarily increase, for example, the reported earnings per share, because you’re essentially dividing the same earnings number by fewer shares,” Sinagle said.

Stock buybacks have been particularly prevalent in the airline industry over the past decade. As Insider previously reported, airlines like American and Delta poured billions into stock buybacks in the years before the outbreak. For example, in In 2019, American spent $12.6 billion to pay its employees. However, from 2013 to 2019, they spent $12.9 billion on stock buybacks.

“There was a lot of pressure on the airlines to announce these huge stock buybacks when they were trying to get people to invest in the airlines,” Nelson said. But most of the profits go into stock buybacks that don’t reinvest in the company, don’t contribute to the airline’s long-term success, and don’t invest in human resources.

Tom Brenner-Pool/Getty Images

And when the pandemic hit, there was anger at an industry that had poured in billions of dollars in bailouts of its own. In the year In March 2020, for example, Bloomberg reported that over the past decade, the largest airlines in the country spent 96 percent of their cash flow on acquisitions.

“One of the things we put in the Covid relief plan was a ban on stock buybacks,” Nelson said. That move drew support from Democrats — and then President Donald Trump.

“We originally suggested seven years or permanent, and it eventually came down to one year,” Nelson said of the ban. But it was during the COVID relief period and a year later, so that ends on September 30 this year.

According to economic research, buybacks improve the liquidity of companies and make prices more efficient, says Sinagl. But it is true that companies that miss their forecasted earnings are more likely to engage in share buybacks – and when this happens, it is associated with “reductions in employment and investment”.

Airlines, particularly Delta, have been hinting on earnings calls that they are preparing to restart acquisitions immediately, Nelson said.

“We can’t do anything about the limitations of the CARES Act at this time,” Delta CEO Ed Bastian said on the company’s earnings call. “But we have long maintained that we have a responsibility to all constituencies, our customers, our employees and our owners as importantly,” he added.

Nelson said it was “incredibly irresponsible” for airlines to think of hoarding those first epidemic profits for reviews. For consumers, that could mean higher fees, less service and less staff, she said.

“It’s a labor issue, but it’s important for anyone who flies,” Nelson said. At the very least, according to Nelson, people should demand that the ban continue until the chaos is brought under control, and the years-long union negotiations are finally settled.

Congress needs to see what it’s like when you have a company focused on business, and not constantly pressured by investors to take those profits for short-term gains and long-term losses. For the company – direct damage to people on the front line and customers trying to get service.