The last Mayday
La globalization is defined as the process of growing communication and interdependence between the economies and societies of different States, resulting from the growing development of information and communication and transportation technologies.
El globalizing process has been progressively dominating the global agenda in recent years, has become something that will characterize the times we live in, the word that will be used to describe our times in future history books.
Esta globalization have used different tools to expand but the most notable among them are the ICT (Information and Communications Technology) that they have achieved universalize speeches, and strongly promote global discourses and transportation.
It is important to understand the role in who have had transport for globalization, although communication has managed to universalize words, ideas, speeches and images, Transportation literally brings people and goods together..
El transportation of goods is of great importance, especially in the field of economic globalization, since it allows the relocation of goods and workers.
Furthermore, the transportation of people It has a great impact on the social and political globalization, without underestimating its important economic impact.
This is where the commercial aviation, a industry that generates 65,5 million jobs, contributes 2.700.000 million dollars to the global economy (if it were a State it would be the 20th world power) and transports the 57% of tourists from around the world according to the 2018 report presented by the Air Transport Action Group (ATAG).
Air transport is a sector, not only of vital economic importance, but also political and social.
Potholes and Recessions
The growth of this industry has gone through many bumps and recessions (such as the 1973 oil crisis, 11/2008 and the XNUMX crisis) but has been consistent over the years, mainly since the 2010s in which commercial aviation has experienced significant growth.
But among the recessions it is important to mention the biggest crisis in the history of commercial aviation.
El 11th September 2001 the twin towers attack, which had a very profound impact on the contemporary international system, and it had great consequences, especially of social and political significance, but For air transport the impact was economic; The New regulations at airports and, above all, the loss of confidence on the part of the population in aeronautics brought important economic consequences..
According to a report by the International Air Transport Association (IATA) in 2011 the profits of 3.700 billion dollars that the industry collected in 2000 were surpassed by the 13.000 billion dollars of losses in 2001.
The industry did not recover until 2006 and 2007 but the industry fell back to pre-2000 levels after the 2008 crisis.
The recession caused by the global pandemic caused by the Wuhan Coronavirus -COVID-19- may be something much more significant for aviation than 11/XNUMX or the oil crisis or any other crisis in the history of aviation, we are talking about a unprecedented phenomenon.
This is how COVID-19 affects to transport
La COVID-19 is an infectious disease with very high contagion rates due to its easy spread, this is the main problem with the virus.
It is not a highly fatal disease but the fact that it spreads so easily implies a rapid and unsustainable saturation of health systems.
This is why the main containment efforts against the virus are focusing on avoiding infections.
Health authorities, having taken into account the easy spread, have decided that the best measure to deal with the pandemic is reducing contact between people to a minimum; recommending social distancing and in many cases imposing house confinement.
These measures have the inherent consequence of fall into disuse of transport.
What is the point of an industry whose purpose is to bring people together, in a world where people cannot get together?
Transport Prohibition
Obviously the Governments have not entirely prohibited the use of transport, since road and even railway connections are essential for the functioning of the State (although they have been substantially limited) and maritime transport is mainly for goods, so they do not represent a relevant risk compared to the transportation of people (we could mention the blow that the tourist cruise industry has suffered, but these belong more to the hospitality industry than to the transportation industry), however, let us not forget that in this article we are talking about air transport.
This industry (although we can recognize the existence of fundamental air connections) It is not in its entirety an essential sector for the functioning of the States and, furthermore, it is a especially dangerous form of transport, especially in an initial phase of the disease, since The spread of the disease from one country to another usually occurs by air means.
We can highlight the first infections in Canada by Iranians who recently arrived on international flights).
So the connection between the pandemic and commercial aviation is explained, as the virus has spread more deeply through a country, airlines that fly to and from that country have begun to notice a drop in demand, on the one hand nationals who are in isolation (forced or of their own volition) and on the other hand, foreigners from less affected countries who decide not to travel to said country due to the risk of contagion.
This is without taking into account the suspensions of air connections that several Governments have decreed, an extraordinary measure to prevent the virus from reaching fewer places.
Chronology of the crisis of COVID-19
As we have said before, there is a deep connection between the spread of the virus and the air transport industry, so that the crisis in the aviation sector has been progressively brewing from the moment China accepted that it had a problem with a new type of coronavirus in the city of Wuhan.
Initial phase: China as epicenter
In the first instance of the spread of the disease, when China was the only country with a significant number of people affected, they took the first measures to prevent the spread of the virus, understanding (as we have mentioned before) the potential danger of flying to infected regions.
Entonces The US Government prohibited the entry into the country of people who had recently been in China.
That is to say, closed this market for American airlines, which did not have a profound impact on them for two reasons: firstly, the American airlines that fly to China are the 3 largest airlines in the world, United Airlines, Delta Airlines and American Airlines, which, due to their immeasurable size , they can face the closure of a non-essential market like the Chinese one and, secondly, the Chinese market is dominated by nationalized Chinese companies that are very consolidated in this market (China Southern Airlines, China Eastern Airlines and Air China).
El Chinese market ended up closing for the whole world, either because governments banned flights or simply demand was so low that airlines had no reason to continue flying to China.
The European airlines were not greatly affected, since very few fly to China, but the Asian ones close to China suffered a harder blow, mainly Scoot (Thailand), Cathay Pacific (Hong Kong) and ANA (Japan).
However, the blow could generally be faced.
Europe as epicenter
The situation did not get significantly worse for aviation until the virus began to spread, The spread of the virus to South Korea was followed by cancellations of flights to South Korea, The spread of the virus to Iran was followed by cancellations of flights to Iran y the same thing happened with Italy.
The moment in which, from Italy, the virus spread throughout Europe was when the situation began to be really serious.
Europe is one of the fundamental markets for global commercial aviation, where the 4th, 5th and 6th largest airlines in the world are located.. In Central Europe, the Lufthansa Group (Lufthansa, Austrian Airlines, Swiss Airlines, Brussels Airlines and Eurowings), in France y Netherlands, the Air France-KLM Group (Air France, KLM Royal Dutch Airlines and Transavia) and, in Spain, United Kingdom e Ireland, IAG (International Airlines Group, formed by Iberia, British Airways, Aer Lingus, Vueling and Level).
The situation for these companies became unsustainable from the moment they Europe became the epicenter of the pandemic, which is never a place people want to travel to.
Donald Trump bans transatlantic flights from Europe
The unsustainable situation became even worse when the March 11, the president of the United StatesDonald Trump made a solemn speech on television in which he announced the ban on transatlantic flights from Europe.
This harsh measure, unprecedented in history, meant a fatal blow to long-distance aviation, transatlantic routes being the most relevant for this air transport sector, due to the multitude of cultural, economic and political relations between the US and Europe.
For a person not familiar with the world of commercial aviation it may not seem like such a serious measure, but it must be taken into account that More than 1700 planes cross the Atlantic daily to go from Europe to the US and vice versa.
The number of people who are affected by this measure is important, and beyond that, these flights are among the most profitable for airlines.
Travel between the US and Europe is a business that reaches 130.000 million dollars annually.
But this ban meant that the crisis was no longer only reflected in European airlines, this ban is also having devastating effects on the three large American airlines.
The 6 largest airlines in the world recorded stock market losses between 14% and 12% and entered a deep crisis.
The response of the airlines to COVID-19
The seriousness of the situation can only be answered by minimizing losses, trying to reduce expenses and ensuring liquidity.
United Airlines
The American United Airlines, which is the 4th largest airline in the world, has reduced its number of flights by 60% for April and anticipates that its planes that continue flying will only see an occupancy of 20% to 30%.
Since the press conference where this was announced, they have reduced flights even more.
Almost all European airlines are registering a negative balance of reservations, that is, they are refunding more reservations than they are recording.
Measures Taken
Certain airlines, among which are the Brazilian Azul, the Australian Qantas and Virgin Australia and the Canadian Westjet all international flights have been suspended until new notice and other companies such as the Polish LOT, the Austrian Austrian Airlines and the Belgian Brussels Airlines They have suspended all their activity.
Although the measures we have mentioned have been taken by small and medium-sized airlines, the major leaders in the sector are also taking forceful measures:
Lufthansa
Lufthansa is the largest airline in Europe and the 4th in the world by revenue, with a fleet of 330 aircraft, with 274 destinations to 75 different countries.
It has drastically reduced its extensive offer of long-haul destinations to a single flight from Zürich to Newark and flights from Frankfurt to Sao Paulo, Chicago, Montreal, Tokyo, Bangkok and Johannesburg.
For this to be Lufthansa's long-haul offering in March 2020 would be unimaginable for anyone in the industry in 2019.
American Airlines
American Airlines, the largest company in the world by revenue and fleet, with a total of 350 destinations, 127 of them international in 65 countries, has reduced its long-haul flights to a flight from Miami to London and flights from Dallas to London and from Dallas to Tokyo. A total of 3 routes.
An extraordinary situation for an airline of this size.
Jobs
Not only will losses be minimized by reducing routes, but job losses are expected..
The total number of layoffs is difficult to calculate, since it depends a lot on how long the situation lasts and whether there are economic bailouts.
In the case of norwegian se will apply an ERTE to 7300 workers, 66,3% of its workforce, Ryanair has called the unions to a meeting to announce the new cut measures, and ask its pilots and cabin crew to request unpaid leave due to the decline in activity.
In Spain, ERTE in the air transport sector will affect around 30.000 employees. and many airlines are expected to follow this path.
And the domino effect that this will produce, especially in tourism-dependent countries like Spain, will be devastating.: the president of IATA for Europe declared in an interview with Business Insider Spain that “Each aviation job supports 24 others in the travel and tourism sectors".
Slot System Change
One more measure that is proposed to alleviate the effects of this recession, depends on the airports more than the airlines, it is change the slot system.
In aeronautics a slot is a reservation of time to make a journey, which is established to have preference when making it and to be able to meet a planned schedule.
According to the current system, companies that buy slots have the obligation to use them, if they do not land or take off in their slot consistently then another airline can buy it.
El problem with this system is that it is causing many airlines continueIn the current crisis, flying practically empty planes so as not to lose certain very valuable slots.
If the system were changed so that it was not required to use the slot to keep it, at least for the duration of the crisis, companies would not be forced to incur the costs of maintaining these flights to maintain the slots.
Merger between airlines
Another measure that is planned to be carried out to mitigate the effects of the crisis if the situation is to be repeated is one of the lessons learned from the 11/XNUMX crisis, the merger between airlines.
In order to face the difficulties of that period, the largest airline conglomerates.
Joining the efforts of various airlines may be a way to confront the biggest crisis in the history of aviation.
If the situation continues we could be facing a very negative prospect, the International Air Transport Association (IATA) assures that, Without external aid, 75% of airlines will go bankrupt in a matter of three months, a process that is beginning to occur.
British airline Flybe (it was the largest regional airline in Europe) has already gone bankrupt y Norwegian Airlines is on the verge of collapse, after having lost 85% of its capitalization and having canceled 4.000 flights. The solution does not depend on the airlines at this point, since the problem comes from outside their industry.
Not everything is negative
In such a critical situation, airlines have the relief that comes with drastic drop in oil prices in recent months, as a consequence of the price war between Saudi Arabia and Russia.
El barrel of Brent is at the lowest price since 2003, at $27,95, which represents a considerable relief for airlines, since their main expense is fuel, making it much easier to maintain certain routes.
If the same crisis had occurred a year ago, the price per barrel would be at $68,39, making it much more difficult for airlines.
Another positive aspect of this crisis compared to that produced by 11/XNUMX is that the problem of the crisis does not arise from distrust of air transport on the part of the population.
After the September 11 attacks, the population developed a certain amount of distrust towards the industry, people were afraid of flying, and governments had to regulate aviation more strictly, which resulted in losses for the industry.
In the case of the coronavirus crisis, as soon as people can afford to fly again, they will, because the cause of the crisis has intrinsically nothing to do with air travel.
Government aid
But these two circumstances are not going to save the commercial aviation industry, they will only reduce, to a certain extent, the effects that the crisis may have.
In order to save themselves, these large business conglomerates look to the State.
The rulers and legislators of the affected countries have to understand the importance of aviation in a functioning economy of a developed country, because beyond the wealth that it generates and the jobs it creates, the Air transportation has an impact on all sectors of the economy, especially in the tourism sector.
Financial aid
In Spain, the Airlines Association (ALA) has already requested the postponement of payment of corporate tax, Social Security contributions and airport taxes that Aena charges them.
And, similar demands are being presented by employers in the air transport sector worldwide. The most specific figures come, again, from AITA, which claims that Airlines worldwide will need a rescue of between 137.000 and 182.000 million euros.
Airlines want to minimize the costs of staying afloat, but above all they want liquidity.
The fact that airlines push so much for this type of measures is mainly due to the fact thator what will determine whether one airline goes bankrupt and another overcomes the crisis is going to be the liquidity that the coffers of these large entities have., since this, in turn, will determine how long they will be able to meet the expenses of staying afloat with a low minimum income.
IAG
So that we can predict that IAG will be able to stay afloat stably for some time, because (according to his data Economista.es) closed the 2019 financial year with a cash balance of almost 6.700 billion euros. In addition, it has credit lines at its disposal that can increase its liquidity to 8.700 billion euros.
This, together with its healthy expense structure, makes it one of the favorites to survive. But as the CEO of SAS (Scandinavian airlines) points out, abundant liquidity does not last forever, the “lifeboat” that liquidity represents is very limited in time.
SAS
SAS closed its fiscal year with cash of 808 million euros and undrawn credit lines of 276 million. Sweden and Denmark, which have stakes of 14,82% and 14,24% in SAS, announced 300 million dollars in loan guarantees for struggling Scandinavian airline.
We can already see the first examples of aid to airlines to face the crisis: among them we must highlight the $58.000 billion aid package that is part of the $2 trillion Coronavirus Economic Stimulus Act approved by the US Congress.
Aid that has been applauded by both CEOs of large airlines and worker associations.
Air France-KLM
In a similar situation to the US airlines is Air France-KLM, which is negotiating an aid package with the French executive, because, despite having respectable liquidity, they have problems with their cost structure and have a negative cash flow.
In an undecided situation are smaller airlines, such as the easy family of brands. o jet2.com, with some liquidity but with a propensity to record significant losses during the lowest season of the economic cycle.
For these airlines the time factor is very important, the only thing that will determine whether they can be saved (without state intervention) will be that they are entering when the peak season arrives.
Nationalizations
But certain governments, not always willing to rescue these immense business conglomerates, are seeing another solution; the airline nationalization.
Given that they cannot allow the bankruptcies of these companies and do not see a capital injection of this magnitude as viable, certain governments see nationalization as the best way to guarantee survival.
The nationalization of certain airlines would make it possible to ensure their liquidity without increasing their debt..
Whether governments decide to nationalize their airlines instead of just injecting capital will be determined by the government's political agenda (a left-wing executive will see nationalization more positively) and by the internal circumstances of the entity.
If an airline's cash flow is more liquid, it may be easier to help the entity financially to face the crisis, meanwhile an airline that reports losses and has problems obtaining credit will be a much more likely candidate for nationalization.
Examples of Airline Nationalizations
We have examples of airline nationalizations to face the crisis.
The clearest is the example of Alitalia, which has not made a profit for a decade and is subsisting on government aid, so the Italian Government has decided to nationalize it given the critical circumstances of the country.
This has been done after the approval of an economic stimulus package of 25.000 million euros, of which 600 million go to save the airlines.
Alitalia can be followed by Norwegian Airlines, this low-cost airline has a cash flow of 300 million euros and problems raising more liquidity, it is in a critical situation.
Similar Measurements
Meanwhile, France and Germany show their willingness to carry out similar measures if strictly necessary: Air France-KLM presents a good enough situation to avoid nationalization, at least as long as the crisis does not prolong.
Lufthansa, despite presenting liquidity of 3.575 million euros, is not enough to cover the costs of a quarter, so they have opted for very drastic cost reductions, which they hope will be sufficient.
Rumor of Nationalization
Thus, the rumor has spread of the nationalization (partial in principle) of British Airways, easyJet and/or Virgin but the Government has denied these rumors, saying that it will only be willing to rescue the airlines as a last option and if they are supported by their shareholders.
Furthermore, the nationalization of British Airways would not make sense for two reasons; its good liquidity and the difficulty that would be involved in being part of an international conglomerate with other foreign airlines, which would have a significant impact.
The large European airlines, Air France-KLM, Lufthansa and IAG, are in the same situation, which makes the nationalization of all these airlines very complicated as they are international conglomerates.
At the same time, there are examples of States that have not spoken out regarding the commercial aviation crisis as well as others that do not contemplate nationalization or any type of rescue, such as the example of the Netherlands, whose President is reluctant to intervene. in this sector of the economy.
Conclusion COVID-19 and commercial aviation
La The crisis caused by COVID-19 in the commercial aviation sector is both a symptom and a cause of the crisis that this virus is causing both in Globalization and in the current neoliberal economic-political system.
It is obvious the way in which Globalization is deteriorating, as transportation is limited, connections between the planet are limited, but the way in which the neoliberal order is affected is more subtle.
Neoliberalism, as well as neoconservatism, has been telling us since Reagan's time that we are going too far with the State, that the welfare State is an attack on people's freedom.
Meanwhile Today we face an unprecedented crisis in which, to protect people, it is deep state intervention necessary, and they will be in those countries where attempts have been made to ensure that the State has less intervention in the lives of individuals where they will suffer the most from the consequences of the virus.
In many places, the State has assumed a role that it has never had before, and history teaches us that it will be difficult for it to renounce it.
For some This will be disastrous, as they will argue that this will mean that After the crisis the recovery will be much slower and less free, For others it will be something great, since the State will be able to rebuild a much more organized economy.
The left will argue that this situation needs more State to resolve, the right will say that it needs less., it is the same old story, but the coronavirus does not understand political ideologies, so I think it is time to put differences aside and start working together.
Reflection of the Nobel Prize in Economics Joseph Stiglitz
I would like to end with a reflection of the Nobel Prize in Economics Joseph Stiglitz in your article The end of neoliberalism and the rebirth of history,
“At the end of the Cold War, political scientist Francis Fukuyama wrote the celebrated essay The End of History? The collapse of communism, he argued, would lift the last obstacle separating the entire world from its destiny of liberal democracy and market economies.
This pandemic has called the latter into question., maybe For the first time since the Cold War, the neoliberal economic order has been questioned, maybe We are facing the “rebirth of history.”
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Hello! I am a jurist and internationalist, semi-finalist of the XIII San Francisco Javier Debate League, fond of debate, photography, Rubik's cubes, maps and history. From Marbella but living in Córdoba.
