(Bloomberg Opinion) -- Airlines aren’t very popular at the best of times. A mode of transport used most often by the wealthy has been attacked for its planet-heating carbon emissions. Many airlines have spent recent years cutting frills, squeezing more passengers into economy cabins and charging for things that once were free. They now risk being blamed for accelerating the spread of the coronavirus. Bailing out such as industry will be hugely controversial – if you rescue airlines, why not cruise lines, hotel owners or tour operators (like Tui AG)?
As with the banks in 2008-2009, governments may have to put aside any residual ill-feeling and provide cash support to a vital sector. Though not systemic in the same way that banks are, airlines support domestic and international connectivity and they help carry about one third of global trade by value. Without assistance, scores could go bust.
But if governments provide assistance, there must be conditions attached.
Unlike the state of the world’s financial plumbing a decade ago, the problem airlines have is a very simple one. Many are having to ground upwards of 75% of their fleets due to flying restrictions and an absence of future demand. Forced to provide refunds and without new revenue coming in, they’re hemorrhaging cash. Lower fuel prices are only of limited help in such an environment. While the best airlines have built a financial cushion for unexpected demand slumps, even the September 11 attacks didn’t lead to a situation as economically devastating as this.
Of course, it’s essential that airlines do all they can to preserve cash before demanding that governments step in. Dividends must be axed, share buyback programs suspended, executive remuneration scaled back and capital expenditures delayed. Recruitment must be frozen and wage costs curtailed. Unused credit lines are being drawn down. Airlines like Lufthansa AG that bought rather than leased aircraft are better placed as these can be used as collateral for new loans.
Already, the European Union has promised to suspend rules that require airlines to keep flying to retain valuable takeoff slots. Tax holidays and exemption from various charges will doubtless be next. The role of credit-card acquirers that hold back revenues from struggling carriers is being queried.
But it’s doubtful this will be enough. The virus shows no sign of being under control either in Europe or the United States. Once it is, air travel bookings might recover only gradually. “Coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over,” Easyjet Plc boss Johan Lundgren said on Monday.
Of course, there’s a debate to be had about whether all airlines deserve assistance; some like Norwegian Air Shuttle ASA and Alitalia were in financial trouble before the virus crisis struck. When the perennially struggling British regional airline Flybe collapsed, rivals like Ryanair Holdings Plc were some of the most vocal in saying the government shouldn’t step in.
Still, don’t be surprised if authorities set aside questions of moral hazard. Rightly or not, there’s still a very strong association between nationhood and having a decent airline. (The large Gulf airlines are still state-owned, while the French and Dutch governments are anchor shareholders of Air France-KLM)
This needn’t be a loss-making exercise for taxpayers, assuming it is managed properly. If countries purchase or enlarge existing equity stakes in airlines, these can be sold later once the industry recovers. Loans can also be repaid once people start flying again.
But any cash assistance should be bound by rules: in the more fragmented European market that might mean nudging airlines to consolidate. Airlines everywhere need to show their spending is directed towards curtailing carbon emissions in line with Paris climate agreement. As with the banking world a decade ago, the aim must be to promote a healthier industry once the current crisis abates.
To contact the editor responsible for this story: Chris Hughes at chughes89@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
©2020 Bloomberg L.P.