How Nations Protect Their Airlines

Have you noticed something the pandemic has only highlighted more clearly? Countries have and countries will continue to protect their large airlines.

We saw a number of airlines fail in 2019 including:

Adria
Aigle Azur
Avianca Brasil
Flybmi
Germania
Jet Airways
Thomas Cook
WOW Air
XL Airways

This during a record “boom” in air travel and worldwide airline profits.

This year, airlines are expected to lose $84 billion according to the latest IATA figures.

You’d think we see more failures due to the pandemic. Thus far, however, the damage has been minimal:

Flybe
Miami Air International
RavnAir

Avianca and South African Airways are on the brink, but both have problems that go far deeper than COVID-19 and are the products of years of state support.

How Nations Prop Up Airlines

Around the world, airlines enjoy all sorts of subsidies. That includes regulatory legislation, infrastructure improvements, subsidized routes, slot controls, and bankruptcy protection.

But what we’ve seen lately is more than that. We’ve seen nations of all stripes pour money back into their airlines at unprecedented levels. All airlines were offered a bailout in the USA. Air France, Austrian, Lufthansa, and KLM received huge bailouts in Europe. Cathay Pacific just received a large bailout in Hong Kong and Singapore Airlines received a massive bailout in late March. There are many more examples.

The airline industry is generally a low-margin business and deemed an essential service. That’s certainly part of it. The multiplier effect of airline service is jobs, business travel, tourism, and economic growth.

But there is more going on. There’s national pride at stake, which persists and will continue to persist even in an increasingly inter-connected world. The idea that borders are dead in Europe has been quickly dismantled: emergency checkpoints between nations have popped up all over the border-free Schengen Area.

And countries, even those which espouse free market values, are simply unwilling to sacrifice their airlines. Don’t tell me this isn’t about national pride.

CONCLUSION

This pandemic era has shown us that it is not just basket cases like Air India, Alitalia, and South African Airways which receive state aid. Most countries seems wholly unwilling to let their flag carrier or other large airlines fails. Whether this is a good idea or bad idea is another discussion, but we’ve seen protectionism on whole new levels.

The takeaway is simple: there is no such thing as free markets and national airlines, with rare exception, are safe.