MIAMI — The early days of the presidency of Donald Trump have been a roller coaster for the United States at large, so it is no shock that the same has been true for the nation’s airlines. One can certainly make an argument that his administration has either endorsed or enacted several morally abhorrent policies, but regardless of one’s position on Mr. Trump’s morality, many pundits from both political parties believe that his administration has been volatile, leaping from highs to lows and from successes to failures on a seemingly daily basis
This volatility, particularly as it relates to America’s foreign relations, can have an outsized effect the airline industry given that globalization is almost intrinsic to the aviation business. So there are two questions at hand. The first is what can airlines expect from a Trump presidency and administration. The second is how should airlines approach their relations with the Trump administration and the federal government.
Trump giveth and Trump taketh away
Two news stories from this week perfectly illustrate the payoffs and drawbacks posed by the Trump administration’s policies. On one hand the DOT took the first step towards striking down a proposed regulation from the Obama administration that would require airlines to include the cost of checked baggage fees in the advertised price of tickets.
This would have represented a substantial shift towards re-regulating US airline offerings and reducing customer choice, as it would pre-define an airline ticket not just as a seat on a flight with basic safety regulations but all of those things and a checked bag.
Moreover, it would make it harder customers that travel light (exclusively with carry on bags) to accurately compare flight costs. For example imagine such a passenger being quoted $307 [$282 + 25] for a flight with American but $293 for a flight with Southwest.
Said passenger might falsely assume that the Southwest flight would be cheaper, when in reality the American option without a checked bag was truthfully cheaper. So on the one hand, the Trump administration’s anti-regulatory bent has done some good for the industry.
At the same time, news broke on Friday that Europe is considering adding visa requirements for American citizens seeking to visit the European Union (EU). The move is ostensibly due to the fact that visitors from 5 of the 27 EU member states (mainly in Eastern Europe) are still required to have visas to visit the United States. However that requirement has been in place for a long time, and sources no less unbiased (about Mr. Trump) than conservative media sites Fox News and Townhall claim that the real reason behind the EU’s posturing is the Trump administration’s executive order last month that temporarily barred travelers from seven Muslim-majority nations.
Without belaboring the point, Europe is the international market where US airlines generate the most revenue and profits thanks to strong outbound demand and joint venture partnerships. Visa requirements for Americans traveling to Europe would sap both tourist and business demand, a downturn that would be exacerbated by the Trump administration’s likely tit-for-tat response of imposing visa restrictions on all European travelers.
Thus in one week, airlines witnessed firsthand the promise and peril that Mr. Trump’s domestic and foreign policy respectively represent. And this is true more broadly of his approach to aviation and economic policy as a whole.
Airlines are over-regulated and over-taxed – Trump can solve that
A good starting point for the airlines on the benefits of the Trump administration comes in the form of regulation and taxes. As the Airlines for America trade association notes, US airlines are at present subject to some 13,000 regulations administered by 13 different agencies. Some of these rules are of course critical to the safety of airline operations.
Some, like the 1500 hour rule have some justification but likely have costs that outweigh their benefits. And some, like the forcible positioning of airlines as virtually the only industry in the US required to include taxes in their advertised pricing are senseless and part of a general trend of overregulation of business that developed under the Obama administration over the last eight years.
The combination of the Trump DOT acting on specific rules (such as the checked baggage fee one above) and the administration setting broader rules (such as the requirement to strike down two rules for every new one issued) should help move the country towards a saner aviation regulatory regime.
Taxes are also another area where airlines can expect relief from the Trump administration. Airlines perhaps the most over-taxed business in the country because in addition to paying directly for the FAA and security infrastructure (20-25% of pretty much every airline ticket goes straight to the government – illustrating one of the rationales behind the Transparent Airfares Act ) they also have to pay income tax on their profits.
The standard justification for the corporate income tax is that it is used to pay for essential infrastructure and government systems (such as courts) that help businesses function. Setting aside the bait and switch of a federal government where less than 10% of the budget can be credibly described as contributing to such infrastructures and systems, the fact remains that airlines are already paying for their own infrastructure. Mr. Trump’s proposals to reduce the corporate tax rate are particularly beneficial for airlines.
Foreign policy is where the risks lie
The question for airlines is going to be whether Mr. Trump’s foreign policy wipes out the gains from better domestic policy. Already he has cut off future growth opportunities to Southeast Asia by withdrawing the US from the Trans-Pacific Partnership (TPP), and while airlines want him to go after the Middle Eastern carriers and choke off their access to the US, he is much more likely to cut off their close Chinese partners (neither is all that likely but China is a much higher probability).
That’s just on the trade policy side, but even on diplomatic policy, whether through wider-ranging travel bans for citizens of Muslim countries or picking fights with US allies like Mexico, the Trump administration’s actions pose substantial risk to international travel demand in the US.
Staying clear of @realDonaldTrump
The other risk for airlines, particularly when it comes to speaking out about Mr. Trump’s policies or standard lobbying is that they might find themselves the subject of one of his patented Twitter tirades. On the weekend of the travel ban, Delta Air Lines found itself in this exact position. And given that Mr. Trump has shown a unique (at least for presidents in recent American history) penchant for intervening personally in the affairs of specific companies, airlines would be wise to build extremely positive relations with Mr. Trump and avoid criticizing him too heavily or engaging in perceived slights (such as American CEO Doug Parker skipping the meeting at the White House last month).
Mr. Trump’s most fervent critics accuse him of being a kleptocrat, and while his actions would have to become far worse to justify that label, airlines should take every step possible to mitigate any related risk.