How to save airlines the right way

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Airlines face an uncertain future. [Photo: EPA-EFE/GARY HE EDITORIAL USE ONLY]

As the virus crisis continues to unfold, more and more airlines are grounding flights – some entirely. But carriers must take their responsibilities to society more seriously if they are to be given any public cash, insists William Todts.

William Todts is executive-director of clean mobility group Transport & Environment.

There will be enormous consequences for an industry which prides itself in its ability to keep the world connected, whatever the circumstances. It will have even greater consequences for their millions of employees, who face an uncertain future.

Airlines aren’t the only ones affected – millions of businesses have now been ordered to close. But some economic actors will be more effective than others at accessing aid.

The airline industry in particular has decades of experience in negotiating for itself a favourable mix of bailouts during bad times, but also exemptions from tax, such as on its jet fuel, that help underpin large profits during good times.

So, governments should pause before writing any more cheques. Right now there is a high level of public solidarity, with everyone pitching in to do their bit – from manufacturers switching to producing ventilators to individuals practicing social distancing. That solidarity needs to be maintained during a potentially long recovery.

It won’t be maintained, however, if governments are seen to treat some actors more favourably than others. For example, if small businesses like restaurants go under, but airlines receive copious bailouts.

We have seen how such unfair treatment can create a political storm. The French gilets jaunes movement was sparked by an increase in the tax on diesel for motorists, while airlines’ fuel remained tax-free. The European project can perhaps survive a recession, but it’s less likely to survive a recession which sparks further populist revolt.

There may be a case for supporting healthy airlines and their workers although it’s not as clear-cut as their CEOs make it out to be. Systematic, sector-wide bankruptcies of airlines would be disruptive. But many airlines, especially those who prudently built up cash reserves during good times, would survive.

However, letting otherwise healthy airlines go under, and waiting for new airlines to emerge from the wreckage, would delay the economic recovery further, and come with its own cost. Not least for the employees of those airlines, who we must try and support wherever possible.

Governments must therefore strike a balance, between enough aid to keep the sector functioning effectively, and providing unconditional and excessive support which will spark a backlash. In striking that balance, a number of principles are key.

The first is that any bailouts must not be used as backdoor opportunities to support airlines which were already on the way out.

The most obvious example is Alitalia, an airline long facing bankruptcy, already under investigation by the European Commission for potentially illegal state aid, and which the Italian government has once more decided to support. Surely there are better candidates for big cash injections?

The second is that no support should be given unless airlines accept that they must finally pay their fair share of tax. The Commission is already proposing to weaken state aid rules to allow countries to pump cash into airlines.

In receiving such support, airlines cannot continue to pay zero tax on jet fuel. Ending this loophole in Europe alone will raise an estimated €27bn a year, revenue that will be essential to exchequers as they seek to recover from the crisis. Such a tax can kick in at an agreed time, such as when airlines have returned to a normal degree of activity.

The third is a commitment to greater sustainability, because we cannot return to the pre-crisis level of constant emissions growth from the sector. Airlines should be mandated to use a growing share of sustainable alternative fuels, for example synthetic kerosene produced from new renewable electricity.

Not only would such a commitment be good environmental policy, it would also be good economic and industrial policy. Requiring airlines to invest in such fuels will be a boost to Europe’s post-crisis economy, and show our citizens that something good can emerge from this difficult period.

A desire to create something good from this trial should be what drives governments. That requires cool heads, and a fair assessment of who deserves to be rescued, who pays for the rescue, and what the public gets in return for their cash, when the good times return for the airlines.

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