Discount Airline Group Presses for Extension of U.S. Assistance

(Bloomberg) -- Smaller U.S. airlines are likely to need more government aid amid an uncertain travel recovery, according to a trade group that represents discounters such as Spirit Airlines Inc., Frontier Airlines and Allegiant Travel Co.

The National Air Carrier Association would like to see a “clean extension” of existing federal payroll support as airlines wait for more passengers to fly amid the Covid-19 pandemic, Chief Executive Officer George Novak said Tuesday. Extra assistance would also maintain the restrictions on mass layoffs included in the initial round of aid, which expires after Sept. 30, he said.

“I think a second tranche will be there,” Novak said in a webcast with Aviation World, a trade publication. “There’s going to be political desire to see it, particularly in an election season.”

The U.S. government has already stepped in with $25 billion in payroll assistance for passenger carriers as they contend with the deepest crisis in industry history, and is offering an additional $25 billion in loans. Carriers also can tap one of several emergency lending facilities administered by the Federal Reserve.

Fiscal Stimulus

NACA helped craft the airline aid contained in the $2 trillion Cares Act. The group’s 18 members include smaller air-cargo carriers and charter airlines as well as discounters.

Larger companies such as American Airlines Group Inc. and United Airlines Holdings Inc. aren’t currently seeking additional federal assistance, according to their trade group, Airlines for America.

Lawmakers and the Trump administration are working toward a fourth round of fiscal stimulus to boost the economy, but more federal aid aimed exclusively at the airline industry isn’t currently on the table. President Donald Trump’s team has privately discussed a $1 trillion package that could include tax breaks for businesses, while Democrats have proposed another $3.5 trillion for the economy.

In addition to the government support, American, United and Delta Air Lines Inc. have raised money from investors. But many smaller carriers don’t have sufficient unencumbered assets to use as collateral for additional loans, whether from the government or in commercial markets, Novak said.

Maintaining Payrolls

There’s industry support for aid that would help airlines preserve employment in case a recovery is faster than expected. More than 100,000 airline workers have accepted temporary leave. Carriers are offering incentives for early retirement and voluntary separation as they seek to cut labor costs, which is often their largest expense.

“Most carriers would take that money,” Novak said, referring to the possibility of a new round of assistance. “You don’t want to be in a position where you’re having to rehire when you do have a full rebound.”

Airlines are stepping up efforts to convince consumers that they can travel without a high risk of contracting the virus. Using guidelines from the Centers for Disease Control and Prevention, they have have implemented new disinfecting regimens in airport gate areas and on planes. Most carriers require facial coverings. And several are holding open as much as 40% of their seats to allow passengers to keep some distance from each other.

But maintaining cabins less full isn’t a a long-term strategy if carriers want to return to profits, Novak said, echoing comments from airlines such as Delta.

“That’s not a sustainable model,” he said.

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