Still Another Headwind for the Economy: The Airline Crisis

EVERY FEW WEEKS a fresh supply-demand crisis hits the economy; in the spring it was baby food formulas, and now it’s the airlines. A very rough July 4 holiday looms for fliers, amid a growing feud between the industry and the Federal Aviation Administration.

ABOUT 1,800 FLIGHTS HAVE BEEN CANCELLED already this week, with far more coming in the next few days. In fact, many industry experts have already written off this weekend as a likely disaster and are hoping that additional hiring can prevent a similar crisis during the Thanksgiving and Christmas holidays.

THIS IS FINALLY GETTING ATTENTION FROM CONGRESS, which is demanding answers from the FAA about air traffic controller shortages. The far bigger issue is an acute shortage of pilots, who retired in droves during the pandemic without much re-hiring or new hiring as Covid receded.

IN A DIFFICULT WEEK OF FLYING, we got hit with flight cancellations, one of which was blamed on Covid, even though the virus has largely subsided. A more likely factor is money — the industry got billions during the pandemic and used very little of it to stay anywhere close to full staffing.

THE INDUSTRY GOT ABOUT $54 BILLION during the pandemic, which will be a focus of congressional hearings later this summer. A vocal critic is the Air Line Pilots
Association, which said this week “it is clear to all that the airlines have mismanaged this critical relief package, which was specifically designed to make certain that airlines were prepared to meet the increase in travel demand we are experiencing today.”

OUR TAKE IS THAT THE INDUSTRY was blindsided by the astonishing snap-back in consumer demand, but a pent-up desire to travel seemed inevitable as the virus waned. The industry didn’t anticipate this?

CRITICISM OF THE FAA’s slow reaction has clouded the political future of Transportation Secretary Pete Buttigieg, who has been on the defensive in recent weeks. Once considered a leading candidate for the presidency, Buttigieg is now caught in finger pointing between the industry and his agency.

THIS IS STILL ANOTHER HEADACHE for the Biden Administration, as travel inflation soars. The only way the industry can muddle through this crisis is to pay sign-up bonuses and much higher salaries, which are being absorbed — along with higher fuel prices — by consumers.

TO BE FAIR, NO ONE HAD A CRYSTAL BALL as the worst pandemic in 100 years came to a close; there was no template to grapple with surging demand and shrinking supplies. The Federal Reserve got it wrong, and scores of industries were caught flat-footed. Generous Covid aid from Washington simply drove demand higher for computer chips, energy, food, etc. The Ukrainian war exacerbated the problem but even without the war there was a glaring supply/demand imbalance.

SO NOW THE AIRLINES WILL GET THE BLAME for taking a huge bailout without keeping their staffing at adequate levels. There will be more crises; the nursing profession is teetering on the brink of crippling labor shortages.

WE HAVE ARGUED FOR THE PAST YEAR that the inflation problem is much more than supply shortages of key commodities. There’s a huge labor component, as employers — from big corporations to mom and pop businesses — frantically raise their compensation to retain and attract workers. It may take months to restore a supply-demand balance in much of the labor market, as this weekend’s airline debacle will show.

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