The 47th president, Donald Trump, signed over three dozen executive orders in his first and second days in office following his inauguration. These policies range from border security to gender ideology, as well as diversity, equity, and inclusion (DEI) initiatives within the federal government. This latter policy directly impacts hiring and training personnel in the aviation industry, particularly in air traffic control, which is governed by the Federal Aviation Administration (FAA).

Apart from some hype surrounding two meme coins—reportedly affiliated with the president and first lady, Melania Trump ($Trump and $Melania, respectively)—there has not been, to the best of our knowledge, any executive orders addressing the economy, particularly on inflation and boosting prosperity within the aviation industry. While there is optimism surrounding the president’s executive actions and what may come, here are some considerations about what truly matters in the real economy, particularly in aviation:

• Diversity, equity, and inclusion (DEI) is a central focus for some, with supporters believing these initiatives have contributed to aviation challenges, while others strongly disagree.
• Concrete fiscal and monetary policies are needed to foster productivity, real investments (not stock market speculation), and inflation reduction to truly aid the aviation industry and beyond.
• When it comes to economic prosperity, the power of the executive pen is limited. Below, we’ll explain why.

Get Involved: Do you believe that the president’s executive orders can benefit the aviation industry economically and promote prosperity? Why or why not? Please share your thoughts in the comments below.

The Focus on Rolling Back DEI Initiatives

One of the most talked-about executive orders is the rollback of all diversity, equity, and inclusion initiatives across the federal government. This directive affects all agencies and departments, including the FAA. While some agencies may resist this move, the executive order is explicit in its demands. Only time will reveal how this resistance plays out.

Here are some considerations:

• DEI’s Role in Aviation Challenges: As we’ve stated in previous articles, there is no conclusive, peer-reviewed research showing that DEI efforts directly lead to increased incidents or accidents in the aviation industry. Without such evidence, it is difficult to predict the impact of rolling back DEI initiatives within FAA activities.
• Hard to Measure: The effects of DEI—positive or negative—are difficult to measure without comprehensive data. As such, any conclusions about its success or failure, or about the consequences of the rollback, would be anecdotal at best. Nonetheless, for some, anecdotal evidence is sufficient to either justify or criticize DEI efforts.
• Private Players Are Independent: The rollback applies primarily to the federal government. Private companies such as airlines, aircraft manufacturers, maintenance operators, and managers are free to set their own policies. However, if recent trends are any indication, private players may also reduce DEI initiatives, citing cost and a lack of direct profit from these activities.

On Aviation™ Note: To be clear, we neither advocate for nor oppose DEI. What we do advocate for is good people doing good work that drives industries, countries, and humanity forward.

Aviation Needs Concrete Fiscal and Monetary Policies

The Trump administration is still in its early days, and we anticipate additional executive orders, congressional acts, and Federal Reserve actions. However, concrete fiscal and monetary policies remain critical to resolving the challenges facing the aviation industry.

• Fiscal Policy: The federal government, Treasury, and Congress should implement bold policies to reduce inflation and boost productivity in the economy. Such measures would provide significant relief to the aviation industry.
• Monetary Policy: While painful, the Federal Reserve must continue its fight against inflation. Inflation appears poised to rise again, and the Federal Reserve must utilize all tools at its disposal to combat it.

On Aviation™ Note: While we are optimistic about the aviation industry’s future, many of its challenges are already "baked into the cake." There are no current indications of major shifts in monetary or fiscal policy, likely due to political considerations.

Economic Challenges Are Too Complex for the Executive Pen

While the executive pen holds tremendous power, it cannot singlehandedly address the multifaceted economic challenges facing the aviation industry.

• Longstanding Issues: The economic conditions affecting aviation have been building since the early 2000s, particularly following the dot-com bubble and bust during Alan Greenspan’s tenure as Federal Reserve Chairman. Nearly 25 years of fiscal and monetary policies have fostered economic instability, higher inflation, and mounting debt.
• Political Expedience: Addressing these challenges requires political courage. For example, raising interest rates to combat inflation would undoubtedly cause a recession. Given the reliance of businesses, credit markets, and individuals on a low-interest-rate environment, this action would trigger economic pain that most politicians would prefer to avoid during their tenure. Similarly, reigning in government deficits and spending on entitlements like Social Security is politically unpalatable.
• Complexity: The economy—and the aviation industry—are inherently complex systems. Actions aimed at solving one problem often lead to unintended consequences. In such systems, the best approach may involve reducing intervention and allowing the free market to operate naturally.

On Aviation™ Note: While this discussion focuses on the U.S. economy, these principles apply to economies worldwide.

Conclusion

While the executive pen holds significant power, it is insufficient to address the massive challenges faced by the economy and the aviation industry today. In fact, we’ve yet to see concrete executive orders directly targeting these economic issues, likely because such actions would be futile given the complexity of the problems.

The solution lies in freeing the market and reducing government intervention, allowing for spontaneous order and human ingenuity to drive productivity and prosperity. Alas, this approach is unlikely to be adopted, as the political cost would be immense. As a result, we predict inflation will continue to rise, economic conditions will grow more unstable, and leaders will persist with interventions that often exacerbate the issues they aim to solve.

Thank you for reading this week's On Aviation™ full article. Do you believe that the president’s executive orders can benefit the aviation industry economically and promote prosperity? Why or why not? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.

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Throughout 2024, there was a steady increase in airline accidents and incidents globally, with a notable uptick toward the latter part of the year, particularly involving high-profile cases. The blame has been spread widely—some point to diversity, equity, and inclusion (DEI) programs within airlines, others to relaxed or heightened regulations and interference, while still others blame the airlines and aircraft manufacturers themselves.

In this article, we take a different approach—one that may not provide the sole explanation but does factor into the situation nonetheless. Here are some considerations beyond the usual scapegoats often cited for the rise in airline accidents and incidents:

• Inflation Is Increasing: Even though inflation dropped from its 2022 high of 9% to a low of approximately 2.4%, we predicted inflation would rebound—and it may even surpass the 9% mark set in 2022.
• Rising Costs of Personnel: Due to inflation, hiring talented individuals capable of managing airlines, particularly in safety-critical areas, has become significantly more expensive.
• Increased Operating Costs: Inflation has led to rising costs across all operational areas, creating additional financial pressure on airlines.

Get Involved: Do you agree with the argument laid out in this article, or do you believe that DEI, government intervention, or airline negligence is responsible for the increase in accidents and incidents? Please share your thoughts in the comments below.

Inflation Trending in the Wrong Direction

In previous editions, we predicted that inflation, though it had moderated from its peak in 2022, would begin to rise again—and may exceed previous highs. Here’s why:

• Low Interest Rates from the Federal Reserve: By keeping interest rates lower than necessary to combat inflation, the Federal Reserve has inadvertently fueled inflation. Moreover, the decision to begin lowering interest rates further exacerbates the problem.
• Fiscal Policies: We’ve discussed extensively how government fiscal policy impacts inflation. It’s worth repeating that when the government spends money—particularly when that money is borrowed—it increases the money supply in the economy, fueling inflation.

On Aviation™ Note: These two factors are the leading drivers of inflation. Not only are they not decreasing, but they are also actively increasing.

Airlines' Increased Costs for Recruiting and Retaining Top Talent

Many observers note that wage growth hasn’t kept pace with inflation over time. This disparity significantly impacts airlines’ ability to recruit and retain top talent.

• Personnel Costs: These are typically an airline’s largest expense, followed closely by fuel costs. However, at times, fuel costs can surpass personnel expenses depending on oil prices. Airlines are struggling to afford the best talent, leading to a reliance on lower-tier candidates to meet budget constraints.
• Training Cutbacks: To save costs, some airlines may reduce or eliminate training deemed non-essential. While this is not widespread, it contributes to a culture of cost-cutting that can have spillover effects on safety protocols and maintenance practices.

On Aviation™ Note: While there is much speculation about DEI being the cause of increased incidents, we refrain from commenting on this without concrete research or studies to support such claims.

Increased Overall Operating Costs for Airlines

Beyond personnel, airlines face other substantial operating costs exacerbated by inflation:

• Maintenance Costs: Inflation drives up the cost of maintaining aircraft, a significant budget item for airlines. Recent incidents have been attributed to poor maintenance practices, which may stem from financial pressures.
• Operating Older Aircraft: Due to the high cost of purchasing new aircraft and ongoing issues with manufacturers like Boeing, airlines are operating older fleets longer than usual. Maintaining older aircraft is costlier and increases the likelihood of component failures if proper maintenance isn’t sustained.
• The Dreaded Corner-Cutting: While cutting corners is universally condemned in the aviation industry due to its impact on safety, financial pressures may lead operators to trim costs in processes and procedures they believe can be done safely.

On Aviation™ Note: While fuel prices are not at all-time highs, they remain a concern. Our prediction is that oil prices may rise again, presenting significant challenges for airlines in the near future.

Conclusion

Listening to mainstream narratives, one might conclude that the top factors driving increased airline accidents are DEI, government intervention, or airline negligence. However, at the risk of oversimplifying the issue, we propose that inflation plays a significant role in these events. Ignoring this factor would overlook a critical component in mitigating risks moving forward.

The last thing we want is to focus on scapegoats while leaving out a vital cause of the problem. Without addressing inflation’s role, the industry will fail to improve, and the situation may worsen.

Thank you for reading this week's On Aviation™ full article. Do you agree with the argument laid out in this article, or do you believe that DEI, government intervention, or airline negligence is responsible for the increase in accidents and incidents? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.

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Since the presidential election, the stock market has been exuberant, and the general sense within the economy has been one of optimism. In this newsletter, we do not endorse or favor any particular political party or candidate. Our job is to look at the facts as they are and make accurate assumptions or predictions about the future, helping readers navigate what is to come. Therefore, we deal in facts and leave opinions and political punditry to others more qualified in that area.

That said, while there may be optimism—which, by the way, seems to be slackening over the past couple of weeks—there are serious economic challenges ahead. These challenges are "baked into the cake," so to speak, and it doesn’t matter who is at the helm; these factors must play out over time. When and how exactly, we do not know, but they must. For the aviation industry, some of the challenges moving forward include:

• Airlines’ Debt Burdens: Their ability to deal with economic shocks given these burdens will determine which airlines survive and which do not.
• Weakening Job Markets in Other Sectors: Particularly in tech and grocery industries, this could affect aviation significantly.
• Fiscal and Monetary Policies: Federal government and Federal Reserve actions will play a critical role in the sustainability of the aviation industry given the current and expected economic climate.

Get Involved: Do you believe 2025 will be a good year for the aviation industry, or do you expect things will continue to get more challenging? Please share your thoughts in the comments below.

Airlines’ Debt Burdens and Economic Challenges

It’s no secret that airlines are heavily indebted. As a result, their balance sheets are weighted toward debt. It comes as no surprise that, as the Federal Reserve seeks to reduce interest rates after approximately two years of increases, airlines have found this favorable. Improved lending conditions might allow them to take on additional debt at better rates to sustain operations. However, there are “flies in the ointment.”

• Market Interest Rates Are Stubborn: While the Federal Reserve has been lowering rates since mid-to-late last year, market interest rates for bonds and credit instruments have seen little movement. Mortgage rates, for instance, remain above 6%, even spiking over 7% at times. Airlines expecting market rates to drop in tandem with Federal Reserve actions are facing significant disappointment.
• Airlines Facing Bankruptcy: In previous editions, we discussed Spirit Airlines and its financial troubles. Despite its restructuring efforts under Chapter 11 bankruptcy, Spirit’s situation underscores broader issues in the industry. Airlines filing for Chapter 11 seek to restructure debt and operations, aiming for profitability—but not all airlines may survive such efforts.

On Aviation™ Note: Let us not be fooled—90% of airlines globally are technically insolvent, with liabilities exceeding assets. Some manage to offset these deficits through strategic revenue streams or access to credit facilities.

Weakening Job Market and Its Impact on Aviation

The job market in sectors like tech and grocery has been shaky, with significant layoffs over the past two years. This affects aviation in two critical ways:

1. Aviation Relies on Adjacent Sectors: The industry doesn’t operate in a vacuum. Economic slowdowns in related industries upstream, downstream, or adjacent to aviation can significantly impact its operations.
2. Massive Job Losses Spill Over: Struggles in other industries may push workers to enter aviation, potentially straining the job market. Conversely, layoffs in sectors like tech reduce demand for business travel, one of aviation’s key revenue streams.

On Aviation™ Note: Industries outside of aviation will always have ripple effects, positively or negatively, on aviation.

Fiscal and Monetary Policies

Fiscal policy (government spending) and monetary policy (interest rate management by the Federal Reserve) significantly influence indebted industries like aviation. Key considerations include:

• The Lowering of Interest Rates: While the Federal Reserve’s lowering of interest rates may be seen as beneficial for the aviation industry in the short term, as it allows borrowing at potentially lower rates, it can lead to long-term challenges. Specifically, the methodologies employed by the Federal Reserve to reduce rates often result in increased inflation over time.
• The Effects of Higher Inflation: There is a common allegation that companies, including those in the aviation industry, engage in price gouging during inflationary periods. However, the truth is that 90% of companies are not gouging customers but instead responding to prevailing market conditions. As inflation begins to rise again—already showing signs of trending upward—airlines and other aviation players will inevitably face pressure to increase prices. While this may temporarily boost revenues, it does not necessarily translate into higher real earnings. Over the long term, higher inflation typically results in reduced real earnings for these companies.
• Fiscal Policy: The federal government periodically undertakes programs that increase spending in the economy. A case in point is the Inflation Reduction Act, which is a significant spending bill. Such initiatives, while addressing specific goals, inherently contribute to inflation. Regardless of the type of fiscal policy, if it involves increased government spending—whether through borrowing or printing money by the Federal Reserve—it tends to drive inflation higher.
• The Double Whammy: As highlighted above, two primary factors are impacting market viability. First, monetary policy from the Federal Reserve is largely inflationary. Second, fiscal policy from the federal government has also been inflationary in recent times. Together, these dynamics create compounded challenges for the aviation industry, necessitating innovative strategies to mitigate the negative effects and maintain stability.

On Aviation™ Note: Regardless of which party controls the White House or Congress, fiscal and monetary policies often lean toward expansion, increasing inflation risks. Let us hope this time is different.

Conclusion

While it is important to remain optimistic about the future, we must also stay pragmatic. Numerous factors will impact the aviation industry, and we must be prepared to face them in 2025. Following the last presidential election in November 2024, there was a wave of optimism, though that high level of optimism has begun to moderate. It is crucial to remember that this optimism may not align with the realities we face.

The truth is that existing conditions and the actions currently being taken by market players are paving the way for even more challenging times ahead—challenges that are already deeply ingrained in the economic landscape. Therefore, the aviation industry must be ready to navigate these difficulties effectively. If not, many players within the industry may simply cease to exist.

Thank you for reading this week's On Aviation™ full article. Do you believe that 2025 will be a good year for aviation? Or do you expect challenges to persist? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.

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