5. Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund
6. Focus on improving world impact through starting philanthropic activities
The auto industry did this through high wages and very large pension plans, and got absolutely destroyed in '08 and also demonized by taxpayers for creating an undeserving "welfare class" of autoworkers that was too expensive to maintain.
> Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund
What if you feel like any further investment yields negative return? Berkshire Hathaway has been sitting on cash for years because they felt that they couldn't put their money into any constituent businesses and generate the right return. Why purposefully throw money into a black hole?
I'm not sure I'd be making long term business decisions based on how reactionary people are to things after a crisis. I also don't think you're going to hear the argument that the reason the auto industry failed was because they were paying their rank and file workers too much...
No one said use it all either, this is a balancing act, just as using up most of your free cash to buy stock back probably isn't a good long term idea either.
> What if you feel like any further investment yields negative return? Why purposefully throw money into a black hole?
First, yielding negative return and throwing into a black hole are two very different things. A negative return can either create more jobs for people, perform a social good, or help in some other way beyond raw return. Businesses of the scale of having billions in cash siting around are not going to run out of ways to improve their business efficiency.
But I'm a lot less convinced by your other two points.
I'm sure the airlines did keep enough cash for an emergency fund, but every emergency fund comes with a model of what an emergency looks like, and for airlines what makes sense to cover is things like oil price increases or a recession that impacts demand for travel by a few percent, not an event like this that results in a 95% decline in demand due to government mandates; we don't want every large corporation hoarding a hundred billion dollars in cash, we want that cash available to invest elsewhere.
And I don't really want corporations to be major leaders of philanthropic activities. Why them? Who are they accountable to? Why should I expect them to support good causes? I would rather see that money in the pockets of individuals who can decide what philanthropy to support, or in the pockets of a government whose philanthropy is accountable to voters.
The (flawed, but not entirely) idea of buybacks and dividends is that they also achieve the function of getting cash out of the hands of big corporation managers. When that cash ends up just sitting in another bank account of a rich person (or in a yacht) that is a shame, but it is its own problem for which there should be different solutions, but when that cash ends up flowing into other investments, that is much better than it sitting in the bank account of an already-huge corporation or being funneled into doomed business lines outside that company's area of expertise.
I would agree that an emergency fund likely would have still run out in this scenario, but I don't think that invalidates the idea of investing back in the business does it? It's just more that the caveat is debatable / easier said than done.
> And I don't really want corporations to be major leaders of philanthropic activities. Why them? Who are they accountable to? Why should I expect them to support good causes? I would rather see that money in the pockets of individuals who can decide what philanthropy to support, or in the pockets of a government whose philanthropy is accountable to voters.
Honestly fair point, I agree generally with who is allocating. I guess the question is how do you execute getting it in the hands of individuals or government for philanthropic purposes though? I wouldn't actually mind seeing a system for that where you can pay into a government controlled philanthropy fund that voters help allocate on ballots during voting but that type of system doesn't exist now, and getting it to individuals is typically limited to your employees which then just turns this into option 4 but with the likelihood that they money goes into other businesses instead of the original intended purpose.
This whole thing could just be a poll on the website or a matching campaign that customers engage with where they choose from a wide variety of sources. That's a major philanthropic activity by the business but then not allocated by the business itself, assuming the options are sufficiently ranging.
And yes, I think it just boils down to option 4: more money to individuals through employee bonuses. I trust the individuals more to support good causes than a corporation with its own agenda.
But note that I also think dividends are a good thing too, for the same reason I think bonuses are a good thing. I think it is generally better for most corporations to pass their cash onto other stakeholders. I wish it was more balanced toward employees rather than shareholders, but I think both are usually better than the corporation holding onto it themselves.
- Increase worker pay and benefits
Am not an apologist by any stretch, but the narrative is "they should have created a black swan fund instead of share buybacks". But they'd have been skewered for years by the trade press for keeping billions of dollars in sub-optimal immediate cash form in order to buy a little extra time.
How about spending that money to provide better service?
It's not a revisionist history that virtually everyone complains about the declining level of service and increased fees.
Service hasn't declined in airlines. If you spend the same on a ticket today as you would have had to in the 1970s to fly, you receive better service. That's because you'd have to be flying first class.
We just decided over time that we were only willing to pay at most $200 to fly across the country round trip, yet still romanticized the idea of having a great experience while doing so.
Keep in mind that of the $200 ticket price, about 30% usually goes to fees and taxes; not airlines. You should be grateful a system so robust exists. One that can take you across the country for such an incredibly low price, given that your only alternative is to drive across the country or take a train; both taking an order of magnitude more time and cost an order of magnitude more.
1. We had the sharpest market drop in history. Models could predict this, but while this drop is say a 1 in 30 year event across all industries, this drop for certain sectors (like airlines) is more of a 1 in 100 year event. If companies all planned all the time for once in a century events, global growth would be much slower.
2. Most companies in most industries are still better for having done share buybacks. We're only back at 2017 stock levels. They've been buying back since 2010. The best return most companies got for their cash was doing this, and I'm not sure that's changed with this downturn. Most companies will be back to normal pricing in a year's time from now anyway, and their share buybacks will still have been as brilliant of a decision as ever.
* Government regulation impacts
* Union strikes
* Aircraft groundings due to faulty (or less-long-lived than anticipated) parts
* Ticket search companies undercutting their profits
* Oil (and thus fuel, one of their main costs) price surges
* Wars and conflicts that decrease travel demand or cause large unsafe-to-fly zones over the world.
* Volcano eruptions that fill regions of the globe's sky with engine-killing volcanic dust.
* Terrorism (the reduction in passenger demand in the wake, groundings while implementing new safeguards, related lawsuits in the aftermath, etc)
* Now-obviously: Pandemics (but even smaller epidemics have shown effects several times in the past couple of decades!)
You mean props up the share price so board members can hoard more wealth?
If you buy back your stock from 20 -> 80 a share vs. having paid out the same amount in dividends, the share buybacks yield a much greater income than dividends, which once paid no longer compound unless individual investors re-invest them.
5. Invest it in research
6. Buy other companies to extend your core biz.
6b. Buy up and coming evolutionary competitors before your way is obsoleted by their way. (Red Hat, Instagram, WhatsApp, all the SD-WAN companies getting swallowed.)
6c. Buy competitor and dismantle it to consolidate and reduce competition.
1. Keep it in cash and get sub-inflationary levels on it, and perform poorly due to your lack of leverage.
2. Invest it in other market securities, effectively running some hedge fund. Not a great idea, distracting from your core biz, and shareholders may not appreciate the exposure to outside risk.
3. Buy back your own stock, which gives back to shareholders.
I'm not saying it was the best thing companies could have done with their money, but there aren't a ton of amazing ways to deploy billions of dollars in cash unless you're expanding operations outside your area of core competency.
I think that lots of people here are creating a lot of revisionist history right now. Almost nobody had any problem with share buybacks for the past five to ten years. The biggest note was that it would increase stock price over time due to the lower availability of shares and higher earnings per share, but hardly the critique most people have these days.