The rash of flight cancellations over the winter break — is it a major blunder by the airlines or the forgivable consequence of the outbreak of Omicron? I looked into this over the past couple of days and my conclusion is that it’s a little of each.
First, the case against the airlines. They’re running with a precariously low ratio of employees to passengers, which leaves themselves vulnerable to surprises like Omicron, the more contagious new variant of the virus that causes Covid-19, which drastically thinned the ranks of flight crews.
This fall, some airline executives even bragged to Wall Street analysts about how they were able to do more with less — providing more flights per employee. “We estimate that we can fly a schedule 10 percent larger than 2019 with the same number of employees we needed in 2019,” Gerald Laderman, the chief financial officer of United Airlines Holdings, told analysts on the company’s third-quarter earnings call on Oct. 20.
Robert Isom, the president of American Airlines, told analysts on Nov. 10 that his company had reduced costs by $1.3 billion and was flying with about 10 percent fewer planes while offering about the same capacity as before the pandemic. On Dec. 16, Edward Bastian, the chief executive of Delta Air Lines, told analysts that even though his company had hired back fewer people than it lost during the pandemic, “Our staffing is exactly where I wanted to be,” given the level of traffic.
Airlines have been reducing the ratio of employees to passengers for years. According to data I downloaded from the Bureau of Transportation Statistics, the number of passengers departing from or arriving at U.S. airports rose 53 percent from January 2003 to January 2020, just before the pandemic, while full- and part-time employment by airlines rose only 15 percent over the period.
But the case against the airlines isn’t just that they were unprepared; it’s also that they received lots of public money to help them stay prepared. Congress gave airlines $54 billion in grants over the past two years to make sure they remained well staffed so that they could continue to serve their vital function of getting people from place to place. To get the money, they had to accept strict limits on layoffs, dividends, stock buybacks and pay increases for senior executives. They were, however, permitted to reduce head count through early-retirement incentives and voluntary furloughs. They did, and those job cuts have been only partially reversed.
So passengers — who also tend to be taxpayers — were angry when in spite of that generous federal aid, the number of flight cancellations jumped during the winter holiday season. After about 100 to 200 cancellations a day for most of December, the number of daily cancellations jumped to 1,627 on Dec. 26, 1,511 on Dec. 27 and 1,283 on Dec. 28, according to Airlines for America, a trade group. That made life miserable for thousands of stranded travelers.
In July, nearly half a year before the latest spate of cancellations, Senator Maria Cantwell, Democrat of Washington, who heads the Commerce, Science and Transportation Committee, wrote letters to the six biggest carriers asking about an outbreak of cancellations during the summer. In a news release she said “the reported work force shortage runs counter to the objective and spirit” of the federal aid program.
So the airlines can’t say they weren’t warned.
All that said, I can’t put all the blame on the airlines. The contagiousness of Omicron caught almost everyone off guard, not just airline executives. A staffing plan that made sense for the Delta variant proved inadequate against Omicron.
Also hard to predict was the strength of the rebound in demand for air travel. A surprising number of people seem to be tired of staying home and are willing to fly in spite of the risk of getting infected. That’s a big change from earlier in the pandemic, when staffing was down but it didn’t matter because traffic was also down; it briefly plunged 90 percent from prepandemic levels.
The steep decline in traffic last year inflicted huge operating losses on the airlines that were only partly mitigated by federal aid. “They were in crisis mode,” said Kathleen Bangs, a former airline pilot who is a spokeswoman for FlightAware, a flight-tracking company. “They were just doing everything they could to survive. They were surprised by how fast the recovery was.”
Richard Aboulafia, a vice president of the Teal Group, an aviation consulting firm, agrees. “They’ve just been through the worst bust in the history of aviation,” he said. “They’re quite fragile.”
Furthermore, the long-run decrease in the ratio of airline employees to passengers isn’t necessarily proof that understaffing is responsible for flight cancellations, said Savanthi Syth, an analyst for the brokerage firm Raymond James. Some regional airlines are flying bigger planes and packing them more fully, which allow them to carry more passengers per pilot, she said. And airlines are saving on personnel by having passengers do their own check-in and baggage tagging, she said. Those changes can be unpleasant for passengers, but they don’t increase the risk of flight cancellations.
In November, Syth tried to predict which airlines were at risk of canceling flights by looking at which ones had added the most to their schedules, thus possibly overextending themselves. She said that she found little to no correlation between those schedule additions and the recent number of cancellations. “It was more a matter of where Omicron was worst,” she said.
It’s undeniable that airlines can reduce the risk of flight cancellations by having more pilots and crew on standby. But adding staff members is slow and costly, especially given the tight labor market and the training that pilots and other crew members require. Airline executives have to balance their ambition to avoid cancellations and their goal of lowering costs to claw their way back to profitability. You, the passenger, don’t have much say in the matter.
Is the Federal Reserve mis-measuring inflation? Its preferred measure of core inflation “has performed poorly” and better options exist, says a new working paper by Laurence Ball of Johns Hopkins University and Daniel Leigh, Prachi Mishra and Antonio Spilimbergo, all at the International Monetary Fund.
A measure of what’s known as core inflation is supposed to reveal the underlying trend in prices by excluding outliers. But the Fed’s core measure, which excludes food and energy from the personal consumption expenditures price index, has been almost as volatile as the “headline” rate that includes all items, the authors say. They say that there’s more stability in the Federal Reserve Bank of Cleveland’s median measure of the Consumer Price Index, which tracks the price of the item that’s precisely in the middle of the distribution of price changes, as well as the Federal Reserve Bank of Dallas’s version of the personal consumption expenditures price index, which is a “trimmed mean” — it throws out the items that have risen and fallen the most before calculating the average.
Core inflation looks less scary lately by the Cleveland and Dallas measures than by the one used by the Fed’s Board of Governors in Washington. The Cleveland Fed’s median C.P.I. measure was up just 3.5 percent in the 12 months through November, versus 4.9 percent for the C.P.I. excluding food and energy. The Dallas Fed’s trimmed mean version of the personal consumption expenditures price index was up just 2.8 percent in the 12 months through November, versus 4.7 percent for that index excluding food and energy (and 5.7 percent for that index including food and energy).
Quote of the day
“When a pile of cups is tottering on the edge of the table and you warn that they will crash to the ground, in South Africa you are blamed when that happens, when your warning was meant to cause people to move the cups to the center of the table, away from disaster.”
— Desmond Tutu, as quoted in The New York Times (Jan. 3, 1985)
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