The COVID-19 pandemic has hit the travel and tourism industry hard. The virus has brought travel almost to a standstill, as countries shield their population by enforcing lockdowns and travel bans. Airlines worldwide were forced to cut capacity up to 95%. Hence, airlines have been facing the problem of idle capital while continuing to have fixed cost and no income as bookings went down to almost nil. IATA analysis suggests that the median global airline had cash reserves for only two months at the end of 2019. As the pandemic induced crisis has continued now for more than three months, most (if not all) airlines are close to insolvency.
Those airlines which are privately owned and commercially run now have to seek help from their government to secure financial support as a last resort. Options range from financial guarantees to complete nationalization of the carrier. In cases of previously profitable airlines, governments have been willing supporters. Does that mean the return of the state-owned carrier?
For most countries air travel is vital for the economy. It connects and integrates markets, it provides access for inbound and outbound travel (pleasure and business), it is a major employer and economic driver for their communities. Governments have long recognized the importance of airlines for the national infrastructure. Actually, in terms of numbers most airlines worldwide are state owned.
The question is whether government involvement will lead to positive governance or public (i.e. political) control. Cautionary tales are numerous, but as history has shown, not all state-owned carriers are doomed for competitive disadvantages.
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Further insights from Lufthansa Consulting’s aviation experts are available here.