Airline companies have been especially affected by the COVID-19 pandemic. Photo by TJ Darmstadt.

Although numerous industries have been left battered by the devastating impacts of COVID-19, the airline industry has received considerable attention, serving as the face of pandemic-wrought economic woes. Fortunately, the government has responded to the airline industry’s struggles, providing nearly $25 billion in relief under the CARES Act, $15 billion in new payroll assistance, and, more recently, $14 billion under the American Rescue Plan Act of 2021. However, despite all this support, the airline industry is back for more, urging Congress for yet another taxpayer bailout. This begs the ultimate question: why wasn’t the first $54 billion enough for the airline industry to recover? A quick look at the business decisions for the largest US airline companies quickly reveals that stock buybacks are largely to blame.

For the past ten years, major airline companies – including American, Delta, United, and Southwest – have used a whopping 96% of their cash flows on stock buybacks, a process by which companies buy back their own stock to reduce the number of shares floating in the market. As a result, this increases each individual shareholder’s earnings per share. In other words, the metaphorical pie is split into fewer pieces and results in more pie for everyone. However, by artificially inflating the price, the listed stock price no longer accurately reflects the company’s true financial capabilities.

Stock buybacks aren’t necessarily a poor financial choice for companies. On the contrary, they can provide an ailing company with the breathing room necessary to stave off investor panic during periods of economic turmoil. In fact, according to the New York Federal Reserve, many large bank holding companies utilized stock buybacks during the 2008 financial crisis to offset poor quarterly earnings and falling revenues. The problem, however, arises when stock buybacks are used excessively. After all, more money spent on buybacks corresponds to less money given to other essential areas such as minimum wage for airline workers.
Unfortunately, this tradeoff between wages and buybacks isn’t merely hypothetical. According to Business Insider, American Airlines spent more on buybacks ($12.9 billion) from 2014 to 2020 than on employee salaries and benefits in 2019 ($12.6 billion). Delta spent the same amount of money in stock buybacks from 2014 to 2020 as they did to pay for all of their employees’ salaries and benefits in 2019. Even at the individual level, wages for the median pilot decreased by almost 10% from 2000 to 2012, while stock buybacks were steadily on the rise.

Second Quarter Operating Revenues 2019-2021. Data from Statista.

Pair these statistics with a drastic loss in revenue due to Covid-19 and it becomes clear why the airline industry had to lay off nearly 400,000 employees last year alone. Instead of wasting money on buybacks, they could have spent that money on their employees – a much more noble cause that might make future government support justified.

But if employees don’t benefit from stock buybacks, why continue engaging in the practice at all? It turns out that there actually is a party that benefits from buybacks: the company’s top executives. Take Delta Airlines CEO, Ed Bastian, for instance, who was awarded $12.5 million in stock awards in 2020, despite taking a pay cut. Likewise, Southwest Airlines CEO, Gary Kelly, earned a record $9.2 million through stock awards and other means of compensation while his company lost billions in revenue due to the pandemic. The reason for their monetary gains couldn’t be simpler: top executives, like Mr. Bastian and Mr. Kelly, receive bonuses that are based, in part, on stock options. The higher the stock price, the higher each executive’s bonus. As a result, top executives are incentivized to continue stock buybacks, ultimately widening the income disparities between the wealthiest executives of the company and the average worker stuck with stagnated wages.

The best course of action would be to ban stock buybacks altogether, as they were prior to 1982 due to fears of market manipulation; if companies wish to use them, they should seek special permission from the Department of the Treasury explaining, in a public hearing, why a stock buyback is necessary. In doing so, not only will buybacks be restricted to moments of emergency, but it will also force companies to alter their business plans so that the wellbeing of their workers becomes a top priority.

Of course, companies could not have known that a deadly pandemic was right around the corner; nevertheless, this does not mean that their failure to prepare for such an event is justified. Quite frankly, it should not have taken a global catastrophe to reveal a colossal waste of resources in the aviation industry. But now that it has, it is time for a change. If airline companies hope to survive the next major disaster, they need to better prioritize their cash flows, whether that’s in the form of higher wages for the people who need it most, business expansion and job creation, or saving money in an emergency fund. Because if they fail to plan now, they are planning to fail tomorrow – and failure is simply not an option.

Aryan Ranjan (CC ‘25) is an indecisive first-year student at Columbia College exploring new topics to study.

When Is Enough Enough?: How COVID-19 Exposed the Airline Industry’s Obsession with Stock Buybacks