Should governments help the airlines? (part 1 of 2)

In the early stages of the pandemic, international flight linkages were actually the main transmission channel for the virus. In fact, flight connections proved to be an even more accurate predictor of infection spread between two countries than the presence of common land borders or trade connections.

Aviation is an interesting but volatile sector. And now the economic destruction wrought by the corona virus has battered the airline industry. Passenger travel has almost disappeared.  Many large airlines have grounded their fleets altogether.  How long can the airline companies survive?  Some are already sending out SOS messages, saying that their collapse is imminent and calling for government support. In the US, the historic $2.2 trillion stimulus bill signed into law on March 27 included $61 billion in relief for the airline industry. More support is part of the current negotiations in the US Congress. Many other governments have also provided relief to their own country’s airlines. In Singapore, for example, the government-owned investment fund has extended credit of $19 billion to Singapore Airlines. In Europe, the fees that airlines pay for air traffic control have been deferred.

Should governments rescue airlines?  The idea is that these are strategic services, essential to providing international linkage not only for emergency supplies but to maintain and enhance existing trade and Investment links.  But if you think about it, there is nothing very special about an airline.  It provides more or less standardized services, using more or less standard capital goods, and more or less standard human resources. There is of course some differentiation, but nothing fundamental: an airline may have a more sophisticated planning and pricing mechanism than its competitors, or it may become well known for the quality of its food, or the kindness of its cabin crew. A few airlines have a poor safety record, but they always (understandably) have a small share of world markets. 

Airlines come and go: do you remember PanAm, TWA, BOAC, UTA, Sabena, and Swissair?   If an airline collapses, what often happens is that its assets (planes, landing slots, etc.) are taken over by some other airline. The planes are repainted. The staff get new uniforms. And flights continue. And so why should governments rescue airlines and what are the alternatives? (More to come on this)