Government support to airlines in the aftermath of the COVID-19 pandemic

Abstract

This paper assesses government support measures to the air transport sector following the outbreak of the coronavirus disease (COVID-19) pandemic from two points of view. First, it explores the factors that shape governments' willingness to support airlines. This is followed by a discussion on the various types of support that may be provided and how country-specific parameters influence the choice of measures. Second, it analyses the implications of government support in three dimensions relevant to air transport policy: competition and liberalisation, airline ownership and control, and environmental sustainability. The analysis suggests that most governments give a high priority to maintaining air transport connectivity in order to protect economic activity and jobs, in aviation itself and in related sectors such as tourism. The trade-off between ensuring connectivity and maintaining competition after the COVID-19 pandemic is a challenge with several political and economic dimensions. The re-orientation of public policy in the aftermath of the pandemic may limit the relative importance of the policy priorities that shaped the evolution of the air transport sector before the crisis, especially those related to climate change and the environment. The role of government and public authorities at all levels - especially the type and duration of measures affecting transport operations - will be crucial for the future development of the aviation industry.

Keywords: Air transport; Aviation; COVID-19; Connectivity; Liberalisation; Privatisation; Public policy.

Fig. 1

Geographic distribution of Government financial aid normalised by 2019 ticket revenue.

Fig. 2

US$159 billion in confirmed or proposed government support. Note: Displayed data include financial support starting at US$100 million for ease of presentation. Country name and associated ISO3 country code is provided in the appendix.

Fig. 3

Government-backed Commercial Loans and Guarantees are Main Forms of Support (US$ billion). Notes: *Includes US$1.19 billion fees/charges deferral from EUROCONTROL, a European air navigation service provider for European Union-based airlines. Loan USA refers to a US$58 billion bailout for US airlines (US$61 billion including grants for contractors), which was signed into law on March 27, 2020 as part of the CARES Act. The USA is considering further US$25 billion support for its aviation industry after the current CARES Act expires in September 2020.

Fig. 4

Financial Support vs. Current Account Balance GDP = gross domestic product.

Fig. 5

Financial Support and Domestic–International Passenger Demand/Revenue GapBubble size = Aid Per Ticket Revenue of 2019 (%).

Fig. 6

Domestic vs. International Passenger and Revenue Reliance.

Fig. 7

Domestic and International Connectivity (number of distinct connections), 2019

Fig. 8

Market Concentration in Domestic and International Markets (HHI of revenue), 2019 HHI = Herfindahl–Hirschman Index.

Fig. 9

Government ownership (in %) of airlines in countries with confirmed or reported Government support.

Figure Apx 1

Top 20 Travel and Transport Services Export Dependent Economies. Source: Authors based on WDI data. Countries in red have reported government support.