American Airlines shouldn’t have been bailed out
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Widespread labor shortages are making their presence felt in the U.S. economy, and some air travelers are feeling the brunt of it. Last Pivot Podcast, Kara Swisher and Scott Galloway discuss the case of American Airlines, which, despite a federal bailout, finds itself in a situation similar to that of many other companies.
Kara swisher: There are travel problems. American Airlines is cancellation of hundreds of flights throughout July, mainly due to staff issues. This time at the height of the pandemic, the company has put thousands of workers on leave. Meanwhile, American Airlines CEO Doug Parker received more than $ 10 million in compensation during the same period. And they all got a lot of money from the Cares Act, etc., etc. And now the employees don’t want to go back to work. So what do you think? What do you think of what happened here?
Scott Galloway: Well, I think it’s more or less the same. What is shocking is not that the workers are not coming back. What’s shocking is that the people who make $ 10 million a year are shocked that people don’t want to come back to work at $ 15 an hour.
Galloway: So it’s good that there is some truth to the fact that the market is the ultimate arbiter and the fact that the market finally seems to be raising the wages of frontline workers or low-income people. But listen, I’m not a big fan of the bailout of businesses, big or small. I think we need to be tougher with business. Airlines would still fly if they all went bankrupt. To be fair, many of them, including Delta and Southwest, have chosen to get loans in the private markets. I think American and United chose to take out government loans.
But look, if you go back to long-term capital management, if you go back to the original Chrysler bailout, all the bailouts are set up for bigger bailouts. And when you bail out a company, the CEO will try to position it as saving jobs and saving America. And really what they do is they save their own compensation, because stocks go down drastically, they get options, and then when stocks go back up, they make $ 10 million. But when we bail out companies, who we really bail out is the 1%.
Swisher: You’ve said it a lot, yeah.
Galloway: If you look at the S&P 500 and break it down into deciles and take the top 50 companies and keep going down, there is now a correlation between size and returns. And the reason is that the market, which is smarter than all of us, is absorbing the idea that there is a symmetrical return of upside risk. Because if you’re too big to fail, the government steps in and says, “Okay, take a big risk. And if they work, boom, you make money. And if they don’t work, we’ll bail you out. And all we really do with these bailouts at the end of the day is bail out the shareholders, who in gross amount 90% goes to the richest 1%. So all of these bailouts, they shouldn’t be called bailouts. They should be called, “We make the rich richer.” We enrich the shareholder class.
Swisher: So what should they have done here? It was a long period of non-travel, and activity dropped. Other companies have laid off people – Airbnb has. Many others have. How do you get people back to work if they don’t want to work? And this, of course, is the Republican cry of appeal. I was in a supermarket the other day, a really good supermarket. I am in Rhode Island right now. And they couldn’t do the deli counter because they didn’t have enough workers, right? And so I asked somebody and they said to me: “It’s because why come back to work if you are going to earn less?
But as soon as employment benefits end, they will go back to work. But they’re going to pick the jobs, they’re going to try to get a better job or a better deal. And some of these companies, which have been on the backs of workers for a while, are going to have a real problem. And in the case of American Airlines, they laid off a lot of people and the contrast – even if it’s more complex than just, oh, a CEO gets money and workers are put on leave – is really going to put them off. employers challenged to do better for employees, presumably.
Galloway: There are a few things to this. And you have summed up the first point perfectly. And that is, if a business – a small business or Uber, whatever it is – can’t survive without software that circumvents minimum wage laws or without an employment contract that pays people $ 2 an hour plus tips, this business should be gone. business. We don’t need businesses like that. It’s bad for the economy. We can also increase the minimum wage.
But I firmly believe that you should be able to lay off workers. The countries that have the easiest time laying off workers are the countries that hire the most workers when the economy recovers. You should also let businesses fail. They go bankrupt. And when they go bankrupt… everyone thinks that no one can get on the plane if Delta goes bankrupt. No. Creditors would come, take over the business. The shareholders would be devastated. Senior management wouldn’t make that much money. A lot of people would be laid off in the short term, then someone else with new capital and new legs and a new vision for a post-pandemic airline would return.
Swisher: This is something that Chamath Palihapitiya told me, is that things should just die. Chamath can be very …
Galloway: Or reinvent yourself.
Swisher: Yes. That’s what he was talking about. And those who don’t invest in growth are going to have problems. It was in the middle, right at the start of the pandemic. He said: “Any company that pays dividends or overpays its CEOs is in dire straits after the pandemic. “
Galloway: Well, one of the things that makes America great is that we believe in fire plants. And these are plants that were only born from the end by fire, and the fire is rejuvenating. And what happens is when you keep bailing out these companies, all you do, Kara, is let more brush and accelerators build up so that when the real crash happens, it’s a firestorm.
Galloway: You let businesses close their doors. And guess what? If Carnival were allowed to shut down, or if American were allowed to shut down, there would still be an airline. People were still going from point A to point B. People would be rehired. And in terms employees, I just find it shocking that everyone sees this as an existential crisis. It’s not that people don’t want jobs. People said, “You know what? I don’t want a shitty job. I’m sick of not getting paid.
Swisher: They had an evaluation. They realized the compromise they made and what they endured.
Pivot is produced by Rebecca Sananes.
This transcript has been edited for length and clarity.