May 20, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙 “Nobody can give you freedom. Nobody can give you equality or justice or anything. If you're a man, you take it.” - See who said it and why it matters at the bottom.

1 big thing: Airlines pack customers in like there's no coronavirus

Illustration: Sarah Grillo/Axios

As restaurants, department stores and other local businesses grapple with operating at half occupancy (or less) to comply with social distancing guidelines, airlines are packing customers to near capacity on a reduced number of flights.

Why it matters: The practice shows how a lack of a national policy allows certain companies — like airlines — to continue to put Americans at risk for exposure to COVID-19 while other companies miss out on revenue by adhering to local regulations.

  • "If you look back at SARS in 2003, this issue of planes being a spreader of the virus has been well-known," Paul Tharp, a lawyer specializing in negligence at North Carolina's Arnold & Smith law firm, tells Axios.
  • Unless Congress passes rules shielding the airlines from liability — as Senate Republicans have discussed — they could face a complicated legal situation, Tharp adds.

How it works: Airlines reduced the number of flights they offered by as much as 90% through the end of May, and as travel demand has picked up, they've simply loaded new passengers onto the few remaining scheduled flights.

  • They could reinstate laid off pilots and restart flights in order to accommodate newly increased demand, but have chosen not to.
  • "Airlines have very significant flexibility to adapt their route networks even during this extraordinary period," a Department of Transportation spokesperson tells Axios.

The big picture: Policymakers have created local ordinances for land-based businesses and public transit services that require new layouts to reduce the number of people.

  • Airlines have had no such oversight — and they're seeing fewer customers simply because fewer people want to fly.
  • As a result, they've created a patchwork of rules that are often merely suggestions.

Delta, for example, instituted a rule "capping seating at 50% capacity in first class and 60% capacity in the main cabin and keeping middle seats blocked."

  • American Airlines, on the other hand, has a policy to "not assign 50% of main cabin middle seats or seats near flight attendant jump seats." However, it does not put a hard cap on bookings and maintains the right to "use those middle seats when necessary."
  • American's representatives have told passengers that flights will only be booked at 50% capacity, but is not enforcing that cap and has been operating flights with nearly every seat filled.
  • United said it will allow passengers to rebook or receive a travel credit if they end up on flights that are close to full capacity.

What's next: Sen. Maria Cantwell (D-Wash.), ranking member of the Senate Committee on Commerce, Science and Transportation, sent a letter this week to Transportation Secretary Elaine Chao urging her department to issue uniform national social distancing guidelines for the aviation sector.

  • The guidance "should clearly lead the airlines to either keep middle or adjacent seats open, or limit capacity of aircraft to a level that allows adequate social distancing," she says.
  • Her letter referenced many outraged tweets from passengers on packed flights.
Bonus chart: TSA by the numbers

Data: TSA; Chart: Danielle Alberti/Axios

The aviation industry has been the economic sector most impacted by the lockdown in terms of activity.

  • Net bookings were down 92% year over year, according to airline trade group Airlines for America; net booked revenue was down 98% for the week ended May 10.
  • Transportation Security Administration agents screened 253,807 passengers on Sunday. That's just 9.6% of the total from a year ago, but up 50% from the number of passengers on Sunday, April 26.
Bonus story: How we got here
Screenshot from @DionRabouin's twitter account.

Today's 1 big thing happened because of an angry tweet I sent.

What happened: I needed to fly to Phoenix for a family matter and booked a flight on American that ended up being canceled. They offered to put me on a different flight with a layover in Dallas/Fort Worth and assured me they were booking all flights at 50% capacity, so I agreed to the change rather than taking a refund.

  • This was a mistake.

And then what: When I boarded the first flight, it was mostly full but there were visible open seats. The next flight was completely full. I had a middle seat. I saw no open seats on the plane.

  • So, like any good millennial I tweeted about it. American responded. We engaged in a back and forth via DMs followed by emails and they explained their policy.
  • (American insists there were 44 open seats on my second flight to which I responded, "I guess the question is: 'Do I believe you or my lying eyes?'")

The big picture: In the course of my angry back and forth with American, I got a flurry of DMs from other passengers who had similar experiences — they expected or were told planes would be socially distanced or at 50% capacity and were shocked to discover their flights packed full.

The last word: I wondered how this could happen given all the restrictions on every business I've tried to patronize over the past month. Now I know.

2. Catch up quick

In Senate testimony, Fed chair Jerome Powell and Treasury Secretary Steven Mnuchin laid out contrasting visions of the economy, with Powell warning of long-lasting damage and Mnuchin predicting a quick, V-shaped recovery. (WSJ)

Three months after filing for bankruptcy, Pier 1 said it plans to liquidate as soon as it can reopen its closed stores. (NPR)

The CBO estimates U.S. unemployment will exceed 15% through September, remain above 11% the rest of the year and hold above 9.3% for all of 2021, just a percentage point below the Great Recession high. (CBO)

The Labor Department will permanently end the practice of giving news media early looks at market-moving economic data. (Bloomberg)

3. The U.S. really is a petro-state (for now)

Data: Federal Reserve Bank of Dallas; Chart: Axios Visuals

Axios' Ben Geman writes: The history of low oil prices juicing the U.S. economy was broken during the pandemic-fueled price collapse, Dallas Fed economists argue in a new commentary.

Why it matters: "[O]n balance this oil price decline has weakened rather than strengthened the U.S. economy, making this event different from past episodes of falling oil prices," they write.

What they found: Normally, low gasoline prices stimulate help the economy because people have more money to spend on other things, while high prices act as drag on growth.

  • But these are not normal times! "Shelter-in-place policies greatly and almost instantaneously reduce the gasoline expenditure share, thereby limiting the direct effect of lower oil prices on domestic consumers," they write.

The big picture: These tragically strange circumstances followed more structural changes over the last decade as U.S. production soared and petroleum imports fell.

  • The growth of the U.S. oil industry means that when it deeply cuts investment, which is happening now, it hits the wider economy.
  • That drag on investment "can be large enough to offset any consumption stimulus" from low prices.
  • Meanwhile, in most other industries, the downward pressure on production costs from low prices is actually quite small.

Of note: By late 2019, U.S. net petroleum imports were negative, meaning that regardless of how much more consumers spend on gasoline, lower oil and gas prices do not mean that aggregate spending in the U.S. economy rises.

The bottom line: "In the current environment, the sharp reduction in capital expenditures by oil companies explains why this oil price decline, on balance, actually hurt U.S. investment spending — and hence, economic growth — not only in oil-producing regions, but overall."

4. Some retail traders are taking cues from TV ads

They have more access to information and analytics than ever before, but new research shows retail investors are also moved to make stock purchases by ads they see on TV.

What it means: In a new paper, researchers at Cornell and Hong Kong University of Science and Technology find a "predictable, recurring, and robust pattern between investor exposure to television commercials and subsequent retail stock trading."

  • And the impact of TV ads on stock prices is "more far reaching than previously believed."

Details: "Within 15 minutes of seeing an ad for a firm’s product or service, investors begin searching for financial information on that firm’s stock."

  • "This surge of attention leads to a higher trading volume of the advertiser’s stock the following day — and contributes to a temporary rise in the stock price of that firm."

The bottom line: "We found that each dollar spent on advertising translated to roughly 40 cents of additional trading volume in the advertiser’s stock."

Go deeper: The phenomenon of the television ad as investment tip

Dion Rabouin

Thanks for reading!

Quote: "Nobody can give you freedom. Nobody can give you equality or justice or anything. If you're a man, you take it."

Why it matters: El-Hajj Malik El-Shabazz who had been known as Malcolm X was a minister and human rights activist who was a leader and seminal figure in the civil rights movement. If he were still alive, yesterday would have been his 95th birthday.