Ground Control To Congress, Commencing Countdown, Engines Off: How Government Shutdown Could Impact Air Travel

The travel industry has experienced a surge since coming out of the COVID-19 pandemic, fostering optimism for airline stocks.

But now a potential government shutdown could temper some of this optimism, with air travel and its patrons poised to experience the repercussions firsthand.

What Happened: A potential government shutdown nears a deadline of Saturday, Sept. 30 with a battle over funding bills in Congress. Failure to agree on the spending bills will see a government shutdown beginning Oct. 1, 2023.

While some federal services across the country will be halted completely as a result of the shutdown, federal agencies related to airlines will still operate, but they could be in limited capacity.

Federal Aviation Administration employees, which includes Transportation Safety Administration (TSA) agents and traffic controllers, are expected to report to work as normal. The employees will not get paid during the shutdown period, as reported by NBC News.

After a funding bill is passed, the employees will receive back pay.

With not all employees likely thrilled to work and not get paid immediately, some may choose to stay home. This could be bad news for airports and airlines, with long lines expected and potential flight delays.

A shutdown also means that the Federal Aviation Administration would have to stop training any new traffic controllers during the shutdown.

Transportation Secretary Pete Buttigieg said that the airline industry could face major setbacks with the shutdown due to the increased need for air traffic controllers and ambitious plans to hire more in 2024.

“Even a few days or weeks could set us back well into next year,” Buttigieg said.

Related Link: Who's To Blame If Washington Shuts Down - Republicans, Democrats Or Biden?

Why It’s Important: The potential impact of the government shutdown also coincides with the renewal of the FAA authorization law, according to the Washington Post. This could create a double government shutdown of sorts for the aviation industry.

“A shut down without (FAA) authorization is a double whammy on the workforce and technology upgrades that the FAA desperately needs,” Senator Maria Cantwell (D-WA) said in a statement. “Failing to act now will intensify pressure on an already strained aviation system and workforce, and disrupt travel for the American public.”

Along with potential flight delays and long lines, airlines might simply see fewer customers during the shutdown time period.

A study by Ipsos this month said that 60% of Americans would cancel or avoid air travel during the government shutdown.

The U.S. Travel Association estimates that a government shutdown could have a $140 million per day impact on the U.S. travel economy.

One potential positive for airlines could be the removal of a federal tax on tickets during the shutdown period, which airlines could collect as extra profits or pass on to customers as savings during the difficult period.

Ultimately, a government shutdown could have a highly negative impact on airlines like American Airlines Group AAL, Southwest Airlines Company LUV and United Airlines Holdings UAL.

The U.S. Global JETS ETF JETS, one of the leading ETFs for the airline sector, providing investors with exposure to the industry, could also be closely monitored.

Several scenarios remain possible as the Saturday deadline approaches, which could still be met to avert a shutdown. Additionally, a short-term solution could be quickly reached even if the deadline passes.

The last government shutdown in 2018-2019 lasted 35 days and saw the aviation industry among the sectors impacted the most.

Read Next: Government Shutdown May Not Prompt Instant Recession Say Economists 

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