Point of order:

Regional airlines derive their revenue from the major they are flying for, meaning their ability to raise wages is limited by the major airline’s ability to make money. Several airlines have gone rather deeply in debt to survive COVID, notwithstanding the PSP. The debt generally takes the form of either bonds or loans.

Most of the loans are essentially pegged to inflation by being a certain percentage over some commercial rate, such as the LIBOR plus 2%. What that means is as the inflation goes up the debt service on those loans will instantly go up.

Many of the bonds are relatively short term - five year to ten years or so - and often were sold for the purpose of buying equipment. And when the bonds were sold and the aircraft backing them were new, most got a pretty good rate - sometimes as low as 2-2.5%.

Since then the bond ratings of the companies have cratered and the new aircraft have become used aircraft and I think only one of the legacies is currently rated above ‘junk’ by the rating agencies. Now if the airlines had the cash flow to pay off the bonds at term, that wouldn’t be all that important, but that seems unlikely at present, meaning they will have to refinance - to issue new bonds to pay off the old bonds. But lower bond ratings and older collateral and higher inflation means the coupon on the new bond debt will have to be higher - perhaps considerably higher. Even now - with the fed pumping money into the system junk bonds are commanding a 4% coupon. If inflation goes even higher the fed will eventually stop pumping money in and interest rates will trend toward their historic norms.


https://www.bloombergquint.com/markets/bond-investors-take-ever-riskier-bets-in-hunt-for-greater-return

Even 2015 levels of inflation could easily see junk bond rates doubling what they are now, and for an airline with $40 billion in debt ( just to grab a number out of the air) their debt service alone could rise to over $3 billion a year, just for the interest alone.

That’s not an environment where they are going to feel free to be generous with their junior partners.

Wages rise based on supply and demand. Companies raise wages when they aren’t getting what they need. So we shall see.

These companies are going to need to post a profit first, lol

^^^^THAT^^^^

And companies deep in debt still need to make the debt service on their bonds and even THAT just means they are treading water. Ultimately you must make enough to pay off the principle of those bonds before the underlying value of the equity disappears entirely. So how long will it take an airline to come up with $40 Billion in profit? A decade, if all goes well? What sort of profits were even the legacies making before COVID?

mmmm, no

Labor is a resource that a business needs to produce its product and it buys what it needs for the best price it can get. Not fundamentally different than lumber or jet fuel or office space.

If the business is being constrained but in adequate labor, it will pay more. Doesn’t matter whether it is profitable.

The head of the IATA has a different opinion.

https://www.travelpulse.com/news/air...-capacity.html

An excerpt:

IATA obviously has an international perspective. The US airline industry is in much better shape than the global industry. Overseas airlines are not done with the pain by a long shot. That might even be good for us.

This really depends on where you work. My wife's department is cutting their lease on an entire floor of office space and everyone will permanently be working from home 4 days/week. Everyone I know with a white collar job will be permanently working from home much more after COVID.

After a year and a half, people have gotten very proficient working from home. Capitalism is survival of the fittest and working from home saves overhead on office space, utilities, supplies, parking, etc. Companies already outsource manufacturing to China, so why not outsource white collar jobs to Indiana?

Also, I get that collaboration may be easier in person, but most people I know don't really 'like' or trust their co-workers. 'Toxic work places,' which can be caused by just a handful of people, are massive drags on office productivity and employee retention. It's a problem that a lot of corporations have been struggling to solve for a long time, and everyone I know has said it's a lot easier to manage the gossip and politics working from home, which objectively increases productivity.

I don't think WFH will be as prevalent in a year or so, but for a big chunk of the market, it'll be permanent.

I don't think this will kill business travel, but it'll definitely change it. I doubt a company will chance a million dollar business deal on a Zoom call. I do think some meetings will be handled over Zoom instead, but I also think a lot more people will get jobs that allow them to 'super commute,' because it'd be cheaper to fly from Rochester to NYC twice a month than to live in NYC.

REI in Seattle SOLD A NEW HEADQUARTERS they had not even moved into. The new headquarters is GONE. Working there is no longer even an option for REI:



Now I’m not pretending any of us at this point can accurately predict the extent to which work at home will replace office work - even management experts are debating that -





-or that Zoom will replace travel, but it is probably likely that at least to SOME degree and for SOME duration there WILL be an effect.

And yes, Rick, while it is indeed not impossible that this will “be good for us,” that sound a little bit like the kid digging through the manure pile hoping to find a pony. Not impossible, certainly, but clearly on the optimistic side..

REI is not so much a business as an activist collective, I wouldn't consider them to be a bell-weather for business or industrial trends. They have always prioritized employees over their bottom line, and in fact don't even have a "bottom line"... after spending their revenue on whatever they want, they return the leftovers to the membership.




Remote meetings was already trending years before covid... covid pushed it as far as it could physically go but now it's going to snap back to some reasonable level because many or even most long-distance business meetings which could practically be done remotely were already there anyway before covid. Covid didn't permanently change that setpoint, it was based on the practical realities of human nature.

The covid impact on business is not good for "us" (but aren't you a cargo pilot now anyway?). Obviously traditional business travel will take a hit, but it's not existential. I expect we'll see some *new* business travel from super-commuters showing face at the office. Net business travel will obviously be down from 2019 levels for a while.