HH What Future Do Airlines Have? Three Experts Discuss

Airlines face an unprecedented international crisis in the wake of the coronavirus pandemic. The International Air Transport Association (IATA) estimates that the global industry will lose US$252 billion in 2020. Many airlines are cutting up to 90% of their flight capacity. On March 1, more than two million people in the US were flying per day. A month on, fewer than 100,000 people are going through airport security daily.

Some climate activists have welcomed the emptied skies, pointing to the dramatic fall in carbon emissions. But others worry that the bounce back and attempts to take back some of the losses might mean that an opportunity for fundamental, sustained change may be missed.

In the US, a federal government US$50 billion bailout fund – part of which will fund cash grants going towards airline workers, and the other part loans for the airlines themselves – was rolled out piecemeal in March, with revisions announced on April 14.

More than 200 airlines applied. American Airlines will get US$5.8 billion, Delta US$5.4 billion (DAL), and Southwest (LUV) US$3.2 billion, among others. Donald Trump, the US president, stated that the airline bailout was needed to return the industry to “good shape” and was “not caused by them”. Another US$4 billion is available for cargo airlines and US$3 for contractors.

In the UK, it was initially announced that no industry-wide bailout would be offered. Instead, the industry would have to rely on broader aid packages covering 80% of salaries (below a cap) for furloughed employees. But subsequently, the government quickly gave easyJet a £600 million loan (US$740 million). Flybe, a smaller regional or “secondary” airline with pre-crisis financial issues, was not bailed out and collapsed. Many money-making routes Flybe ran have since been picked up by others.

Continental Europe is in worse shape. Italy has re-nationalised Alitalia, forming a new state-owned entity and investing €600 million (US$650 million). France has indicated it will do whatever it takes to bailout Air France/KLM (France owns 15% and the Dutch 13%), with a possible €6 billion bailout package (US$6.5 billion).

Meanwhile, Australia’s Qantas secured a A$1 billion loan (US$660 million). Debt-laden Virgin Australia, meanwhile, was denied a A$1.4 billion loan (US$880 million) and has subsequently plunged into voluntary administration. Singapore Airlines, however, got a US$13 billion aid package.

The airline industry has faced many crises before – 9/11 and the 2010 Icelandic volcano eruption, for example. But these pale in comparison to the economic hit that airlines are currently facing. Some are asking: can it recover? Is this an economic crisis that could reshape how we travel and live? Or will it turn out to be more of a pause, before returning to business as usual? And what role does the climate crisis play in all this – how will sustainability figure in any rebooting of the industry going forward?

We are all experts in the airline industry. Darren Ellis (Lecturer in Air Transport Management) considers these questions first, looking at the industry’s structure and response. Jorge Guira (Associate Professor in Law and Finance) then explores bailout options and likely future scenarios for the industry. Finally, Roger Tyers (Research Fellow in Environmental Sociology) considers how the industry might just be at a turning point in terms of how it tackles climate change.

A global problem

Darren Ellis, Lecturer in Air Transport Management

Most of the global airline industry is currently grounded. Although some routes are still managing to operate, and there is evidence of a gradual domestic air market rebound in China, 2020 will certainly not see the 4.6 billion annual passengers of 2019. The long-term trend of ever-rising air passenger numbers year on year has been brought to a dramatic and rapid halt.

What this means for the global airline industry is vividly on display at airports around the globe as terminals remain empty and aircraft occupy any available parking space.

Like the predominately national response to the virus, so the airline industry is also seeing a wide range of policies and practices tailored and implemented almost exclusively at the national level. This means that some airlines, thanks to well-chosen national policies, will fare better, while others will flounder.

This is because beyond the multilateral single air market of Europe, the global industry remains firmly structured on a bilateral system. This web of country to country air service agreements (ASAs) is basically made up of trade treaties which governments sign with one another to determine the level of air access each is willing to permit. Even in Europe, the single air market essentially acts as one nation internally, while externally, individual European countries continue to deal with many countries on a bilateral basis.

The bilateral system is based on a bundle of rules and restrictions, including airline ownership (typically, a minimum of 51% of an airline must be owned by people from the country where the airline is based), national control, single airline citizenship and home base requirements. This effectively locks airlines into a single country or jurisdiction.

Despite this structure, global cooperation in aviation is strong, particularly across safety standardisation, but less so on the economic front. A lot of this cooperation happens via the International Civil Aviation Organization (ICAO), the industry’s specialised UN agency. Meanwhile, the IATA supports and lobbies on behalf of member airlines.

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This article is republished from The Conversation under a Creative Commons license. Read the  more

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