We Need Better Airline CEOs

In June 2021, Delta CEO Ed Bastian told investors at the AllianceBernstein Strategic Decisions Conference why they should buy airline stocks. He said airlines are investable because Delta had proven, among other things, “that governments will be there for us if ever needed again.” My colleague Gary Leff flagged the clip at the time.

As you can imagine, I didn’t like that. The unfortunate – indeed, obnoxious – reality is that Bastian isn’t wrong. Washington rescued the airlines after 9/11 and again in 2020 and 2021, with tens of billions of dollars in payroll support. Each time, the lesson for airlines, their creditors, and their shareholders was that, in a crisis, someone else bears the downside. In fact, during the next emergency, watch how fast the airlines will be out begging for a bailout.

Now United’s CEO, Scott Kirby, is in the news saying things I don’t like either. When the New York Times asked him this past weekend about the public’s falling trust in CEOs, he didn’t talk about running a better airline. He said instead that society is threatened by wealth inequality. He wants a national wealth tax, because a state version “won’t work” when “people will just move.” Because such soaking the rich apparently isn’t enough, Kirby also wants inheritance taxes “close to 100 percent at some level.”

In a recent post, Leff gives some perspective on Kirby:

“I’ve compared Kirby to Captain Renault in Casablanca before. Under Biden, United leaned into diversity programs and pronouns, climate commitments, affirmative action and vaccine mandates. Under Trump, Kirby became a defender of the President’s tariff strategy and intentions. Now, speaking to the Times, he’s offering wealth redistribution. As Renault offered to Germany’s Major Strasser, ‘I have no conviction, if that’s what you mean. I blow with the wind, and the prevailing wind happens to be from Vichy.’”

Over at Fiscal Reality Check, Stanford’s Joshua Rauh offers several theories he had heard for why a man who sells a product built on charging more for a better seat would say such things. The one that stuck out to me is that Kirby may be pandering to the kind of government he expects to fund United’s next bailout. Once your business model includes a government rescue, keeping the rescuers happy becomes part of your job. You can see why I thought of Bastian.

But beyond this very real possibility, Rauh raises another strong point about Kirby’s policy recommendations, worth repeating here. A CEO works for the company’s owners. Kirby is using a platform his shareholders give him to campaign for a tax on those same shareholders. The whole post is worth reading, but here is the conclusion:

“Kirby is entitled to his views on wealth inequality. As a private citizen, he is free to advocate for whatever tax system he likes. He is also free to volunteer to pay higher taxes himself. What is harder to defend is the use of the platform he holds as United’s chief executive, a platform that exists because shareholders entrusted him with their capital, to campaign for policies aimed squarely at those same shareholders’ wealth.”

Rauh reminds us that if you think many of these shareholders would be spared by a billionaire tax or a high-threshold wealth tax, look at tax history. Inevitably, what starts as a tax on the very rich ends up spreading to many who do not consider themselves rich. Remember, for example, the history of the federal income tax, the alternative minimum tax – each extended to tax people initially said to be spared the tax. This wealth tax won’t be any different.

The bottom line is that Rauh is right: if you own an S&P 500 fund (which a very large number of people do), you’re one of Kirby’s bosses, and he just volunteered to have the state confiscate a huge chunk of your savings.

Of course, it’s always worth reminding people that the policy itself is as bad as the judgment behind it. Kirby concedes a core challenge facing wealth taxers is that people move. Making the tax national doesn’t fix that. Leaving aside the possibility of moving internationally (something the trio of French wealth taxers fighting to leave-no-fortune behind is working on with their global wealth tax), a wealth tax hits the normal return to saving, year after year. A 2% tax on an asset earning 4% takes half the return, which works out to a 50% income tax on the return to saving, before any income tax is even applied. An inheritance tax near 100% tells people to spend it all rather than leave anything behind. If the targets of the taxers cannot move themselves to lower-tax jurisdictions, these targets will move their assets into lower-tax uses – including consumption and even idleness. If you want a growing economy, you tax consumption, not the capital that makes workers productive.

Leff agrees and makes a strong case for how misguided this call is in the airline industry. But as he points out, Kirby might feel he can say all of this with few consequences, since it is unlikely to pass because of constitutional restrictions.

From now on, I would prefer airline CEOs focus on running their airlines in ways that can survive a downturn without a check from Washington, and earn people's trust by flying on time, comfortably, and safely, not by offering to tax the people who own the company.