The aviation industry has suffered a severe blow from the COVID-19 pandemic, being one of the targeted industries to receive government bail outs in various countries. At the end of March, the government of
HKSAR had implemented measures such as a waiver of the Air Traffic Control Charges and rental concessions to alleviate the sustained challenges of the local aviation industry. Have you ever wondered to what extent has the aviation industry been impacted by the pandemic? Should the government implement more direct measures to bail them out?
The market is no longer at its equilibrium – the Ice Age of the Aviation Industry
Due to the high health risk associated to flying and travelling; as well as the fact that many countries are in lockdown due to the pandemic, they are stopping the issuance of visa waiver programmes and banning non-nationals from entering the country. This has led to the demand for flights decrease significantly. Using the data issued by Cathay Pacific as an example , the company has incurred a loss of nearly HKD 2 billion in February, and the carrying capacity has decreased from a peak of 100,000 passengers a day to the current figure of 500.
At the moment, even if airline companies are giving away free tickets, people may still refuse to accept them, i.e. when the price is 0, the quantity demanded is less than the quantity supplied. In fact, air tickets have become free goods, any adjustments in the price could not solve the current market disequilibrium.
The unrelenting plea for government subsidy – as different industries similarly face a state of emergency
The government of HKSAR has discouraged people from travelling unnecessarily, and has issued the red travel alert to all other countries. Airline companies have hopes that this can act as the basis to request for direct subsidies from the government. In reality, not only airlines in Hong Kong, but various airline companies, large and small, around the world are suffering severely, having to greatly reduce the number of passenger flights, while some have even temporarily suspended all flights. The International Air Transport Association（IATA）has predicted that if the situation continues, most of the airline companies in the world will be in the verge of bankruptcy by May. In order to get through the most challenging period in the modern history of the aviation industry, all airline companies are pleading the governments for help. Under the current pandemic, all industries are affected. For example, Hui Lau Shan, a chain of dessert shops based in Hong Kong, has been sued by a landlord for months of unpaid rent. Popular Bookstore has also made the announcement to close all its bookstores in Hong Kong. Under this difficult operating environment, it is unrealistic for the government to subsidize each sector, hence, coming up with a way to use public funds in a fair way is no doubt, a big challenge.
Our suggestion is that the government could consider issuing loans as the primary measure to aid the aviation industry, while the use of subsidies can be a secondary means. In this way, it could reduce the public expenditure and avoiding any discontentment from the taxpayers. In addition, relief funds should not only favour large airline companies, otherwise, smaller airline companies may run into bankruptcy. The industry would lose its competition. By doing so, it will encourage monopolization, limiting the choices of the consumers and driving up the ticket prices. In the end, even when the pandemic is over, everyone would have to suffer from the consequences.